Asked by Brandon Morrone on Jul 26, 2024
Verified
The present value of a given sum to be received in five years will be exactly twice as
great as the present value of an equal sum to be received in ten years.
Present Value
The current value of a future sum of money or stream of cash flows given a specified rate of return.
- Appreciate the significance of discount rates in calculating the current value of future cash flows.
Verified Answer
DT
Debra TrujilloJul 29, 2024
Final Answer :
False
Explanation :
The present value of a sum to be received in five years is not exactly twice as great as the present value of an equal sum to be received in ten years, especially when considering a discount rate of 16%. The present value decreases as the time frame extends, due to the time value of money, but the relationship is not a simple doubling when moving from five to ten years, particularly at a specific discount rate like 16%.
Learning Objectives
- Appreciate the significance of discount rates in calculating the current value of future cash flows.