Question 8 Which of the following statements about the future value of a dollar
ID: 2642023 • Letter: Q
Question
Question 8
Which of the following statements about the future value of a dollar is true?
A dollar paid (or received) in the future is worth more than a dollar paid (or received) today.
A dollar paid (or received) in the future is worth as much as a dollar paid (or received) today.
A dollar paid (or received) in the future is worth less than a dollar paid (or received) today.
A dollar paid (or received) in the future is not comparable to a dollar paid (or received) today.
a.A dollar paid (or received) in the future is worth more than a dollar paid (or received) today.
b.A dollar paid (or received) in the future is worth as much as a dollar paid (or received) today.
c.A dollar paid (or received) in the future is worth less than a dollar paid (or received) today.
d.A dollar paid (or received) in the future is not comparable to a dollar paid (or received) today.
Explanation / Answer
A dollar paid (or received) in the future is worth less than a dollar paid (or received) today.
Reason: If the interest rate is 10% per annum , then $110 paid a year after is same as $100 paid today. So future payments are discounted at the rate of interest to get the present value.
c.A dollar paid (or received) in the future is worth less than a dollar paid (or received) today.
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