Which one of the following statements is correct, all else held constant? There
ID: 2637748 • Letter: W
Question
Which one of the following statements is correct, all else held constant?
There is an inverse relationship between the present value and the future value.
The future value decreases as the time period increases.
The interest rate is directly related to the present value.
The present value increases as the time period decreases.
There is an inverse relationship between the present value and the future value.
The future value decreases as the time period increases.
The interest rate is directly related to the present value.
The present value increases as the time period decreases.
Explanation / Answer
FV = PV(1+r)^n
PV = FV/(1+r)^n
Thus PV is inversenly proportional to time period n
Thus as value of time period decreases, PV increases
Hence the correct statement is
The present value increases as the time period decreases.
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