You have been promised a payment of $100,000 in the future.In which case is the present value of this future payment highest?
A)You receive the payment 2 years from now and the interest rate is 6 percent.
B)You receive the payment 2 years from now and the interest rate is 4 percent.
C)You receive the payment 3 years from now and the interest rate is 6 percent.
D)You receive the payment 3 years from now and the interest rate is 4 percent.

Question

Quizplus · Accepted Answer

The present value of a future payment decreases as the interest rate increases and as the time to receive the payment increases. Therefore, receiving the payment in 2 years at 4 percent interest rate would have the highest present value compared to the other options.

You Have Been Promised a Payment of $100,000 in the Future.In