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a cash flow of $100 years in 5 years is always worth more than$99 in...

a cash flow of $100 years in 5 years is always worth more than $99 in 4 years. true or false?

Solutions

Expert Solution

FALSE

If the interest rate per year is more than 1.1%, then the cash flow of $100 in 5 years will be less than $99 in 4 years

Example: Let's say interest rate is 2% per year

CF4 = CF5/(1 + r)

CF4 = 100/(1 + 0.02)

CF4 = $98.0392156863

This is less than $99. So, the statement is FALSE

jeff jeffy answered 2 years ago
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