Which of the following statements is true? The higher the discount rate, the hig

ID: 2472883 • Letter: W

Question

Which of the following statements is true?

The higher the discount rate, the higher the present value.

The process of accumulating interest on interest is referred to as discounting.

If money is worth 10% compounded annually, $1,100 due one year from today is equivalent to $1,000 today.

If a single sum is due on December 31, 2013, the present value of that sum decreases as the date draws closer to December 31, 2013.

The higher the discount rate, the higher the present value.

The process of accumulating interest on interest is referred to as discounting.

If money is worth 10% compounded annually, $1,100 due one year from today is equivalent to $1,000 today.

If a single sum is due on December 31, 2013, the present value of that sum decreases as the date draws closer to December 31, 2013.

With the higher discount rates, present value falls. Thus, first statement is wrong.

Accumulated interest on interest is compounding, thus second is also false.

Present value of 1100 = 1100/(1.1) = $1000. Thus, the correct option is Option C.

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