Asked by Diana Stevenson on Jun 18, 2024
Verified
The present value of $1000 received 2 years from now given the current rate of interest
A) is less than the present value of $1000 received 1 year from now.
B) is the same as $1000 received 3 years from today.
C) is the same as $1000 received 1 year from today.
D) is less than $1000 received 3 years from today.
Present Value
The present value of a future amount of money or series of cash flows, taking into account a particular rate of return.
Rate of Interest
The percentage of a sum of borrowed money that is paid by the borrower to the lender for the use of that money for a certain period.
- Compute and comprehend the notion of the present value of future finances.
Verified Answer
CS
Cassie SherfyJun 23, 2024
Final Answer :
A
Explanation :
The present value of $1000 received 2 years from now is lower than the present value of $1000 received 1 year from now because of the time value of money principle. The longer an individual has to wait to receive the money, the less it is worth in today's dollars. Therefore, option A is the correct answer. Option B is incorrect as the present value of $1000 received 3 years from today would be less due to the effect of inflation. Option C is incorrect as the time frames are different, and option D is incorrect as the present value of $1000 received 3 years from today is subject to the effect of inflation.
Learning Objectives
- Compute and comprehend the notion of the present value of future finances.