Asked by Benny Csillag on Jun 20, 2024
Verified
Assuming that interest rates are positive, the present value of an $80 barrel of oil in two years is less than an $80 barrel today.
Present Value
The current value of a future sum of money or stream of cash flows given a specified rate of return.
Interest Rates
The cost of borrowing money, expressed as a percentage of the amount borrowed, or the compensation paid by banks to depositors for saving or depositing money.
- Calculate and understand the concept of present value in the context of resource valuation over time.
Verified Answer
BN
Bryan NacuaJun 22, 2024
Final Answer :
True
Explanation :
The present value of future cash flows (like the value of an $80 barrel of oil in two years) is discounted back to the present value at the current interest rate. If interest rates are positive, the present value of future cash flows will be less than their future value, meaning an $80 barrel of oil today is worth more than an $80 barrel of oil in two years.
Learning Objectives
- Calculate and understand the concept of present value in the context of resource valuation over time.