Which one of these statements related to the time value of money is correct? Ass

Question

Which one of these statements related to the time value of money is correct? Assume a positive rate of interest. A. A dollar increases in value the further into the future it is received. B. The future value of an invested dollar is inversely related to the rate of interest. C. The present value of a dollar to be received in one year is directly related to the interest rate. D. A dollar received today is more valuable than a dollar received next month. E. A dollar invested today will increase in value in a linear manner if interest earned is reinvested.

Explanation / Answer

Answer is Statement D.

Statement A is incorrect. A dollar decreases in value when it is received at a farther time in future.

Statement B is incorrect. Future value is directly related to interest rates.

Statement C is incorrect. Present value is inversely proportional to interest rates.

Statement E is incorrect. A dollar invested today will increase in value in a non linear manner, which is the impact of compounding.

Statement D is correct. A dollar received today is worth more than a dollar received a month later. This is because a dollar received today can be invested today and start compounding or generating interest.

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.