Which of the following statements are correct concerning present value?
I. The present value interest factor for a single sum is always equal to or less than 1.
II. The lower the discount rate for a given year, the smaller the present value interest factor.
III. The further in time, the smaller the present value interest factor.
IV. The present value is equal to the future value only when the stated interest rate is 1%.
A) I and II only
B) I and III only
C) II and III only
D) I, III and IV only

Question

Quizplus · Accepted Answer

I. The present value interest factor for a single sum is always equal to or less than 1 - this statement is true. The present value interest factor is a ratio of the present value of a sum of money to its future value.
II. The lower the discount rate for a given year, the smaller the present value interest factor - this statement is true. The discount rate is used to calculate the present value of a future cash flow, so a lower discount rate will result in a higher present value interest factor.
III. The further in time, the smaller the present value interest factor - this statement is also true. The present value interest factor decreases as the time period increases, as the present value of future cash flows becomes less valuable as time goes on.
IV. The present value is equal to the future value only when the stated interest rate is 1% - this statement is false. The present value is not equal to the future value except when the discount rate is zero. At an interest rate of 1%, the present value will always be less than the future value.

Which of the Following Statements Are Correct Concerning Present Value