Which of the following statements is correct? The present discounted value of $1
ID: 1121869 • Letter: W
Question
Which of the following statements is correct?
The present discounted value of $100 dollars payable in one installment, 2 years from now, is: PDV = $100/(1 + r)2, where r is the present real interest rate, expected to prevail for the next 2 years.
The present discounted value of $100 dollars payable in small installments, at each instant of time, from today (time 0), until 2 years from now, is: PDV = $10002e-rtdt, where r is the continuous interest rate.
The value of the discrete time PDV in (a) is less than the value of the continuous time PDV in (b).
All of the above.
a.The present discounted value of $100 dollars payable in one installment, 2 years from now, is: PDV = $100/(1 + r)2, where r is the present real interest rate, expected to prevail for the next 2 years.
b.The present discounted value of $100 dollars payable in small installments, at each instant of time, from today (time 0), until 2 years from now, is: PDV = $10002e-rtdt, where r is the continuous interest rate.
c.The value of the discrete time PDV in (a) is less than the value of the continuous time PDV in (b).
d.All of the above.
Explanation / Answer
Ans: All of the above.
Explanation:
The formula to calculate present value given in (a) and (b) are correct.The present value is more when compounding period is more. Thats why The value of the discrete time PDV in (a) is less than the value of the continuous time PDV in (b).
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