Question

In: Finance

Which of the following statements is false with respect to the present value of a future...

Which of the following statements is false with respect to the present value of a future amount?

Select one:

a. The higher the discount rate, the lower the present value of a single sum for a given time period.

b. The lower the discount rate, the lower the present value of a single sum for a given time period.

c. none of the answers is correct.

d. The relation between present value and time is exponential.

e. The greater the time period, the lower the present value of a single sum for a given interest rate.

Solutions

Expert Solution

b. The lower the discount rate, the lower the present value of a single sum for a given time period.

Discount rate and present vaue of future amount has invese relation. So, when discount rate is lower present value will be higher, not lower.Hence,given statement is false.

Presnt value at
Presnt value at 10% Presnt value at 6%
Year Cash flow Discount rate Present Value Year Cash flow Discount rate Present Value
1 1000 0.909090909 $            909.09 1 1000 0.943396226 $           
Presnt value at 10% Presnt value at 6%
Year Cash flow Discount rate Present Value Year Cash flow Discount rate Present Value
1 1000 0.909090909 $            909.09 1 1000 0.943396226 $            943.40
Presnt value at 6%
Year Cash flow Discount rate Present Value Year Cash flow Discount rate Present Value
1 1000 0.909090909 $            909.09 1 1000 0.943396226 $            943.40

jeff jeffy answered 2 years ago
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