Asked by Candace Stubblefield on May 16, 2024
Verified
The present value of a dollar rises as
A) the interest rate declines and the number of years you wait for your money declines.
B) the interest rate rises and the number of years you wait for your money rises.
C) the interest rate declines and the number of years you wait for your money rises.
D) the interest rate rises and the number of years you wait for your money declines.
Present Value
The value today of a sum of money or sequence of cash flows expected in the future, discounted by a certain rate of return.
Interest Rate
The percentage at which interest is paid by a borrower for the use of money that they borrow from a lender.
- Master the concept of present value and how it is influenced by changes in interest rates and time.
Verified Answer
RS
Raman SunnerMay 22, 2024
Final Answer :
A
Explanation :
The present value of a dollar is affected by two factors: interest rate and time. When the interest rate is lower, the present value of a dollar increases because the cost of borrowing money is lower. Additionally, the longer the time horizon, the lower the present value of a dollar because there is more time for inflation to erode the value of money. Therefore, as the number of years you wait for your money declines along with a lower interest rate, the present value of a dollar rises.
Learning Objectives
- Master the concept of present value and how it is influenced by changes in interest rates and time.