If the interest rate is positive, the present value of $10 to be received in the future is
A)less than $10.
B)equal to $10.
C)more than $10.
D)Any of the above is possible, depending on the interest rate and when the payment is to be received.

Question

Quizplus · Accepted Answer

The present value of $10 to be received in the future is less than $10 when the interest rate is positive because the value of money decreases over time due to inflation and the opportunity cost of tying up money in an investment. Therefore, the present value of $10 is less than $10 because the money could be invested elsewhere and earn interest.

If the Interest Rate Is Positive, the Present Value of $10