If the interest rate is zero, a promise to receive a $100 payment one year from now is:
A) more valuable than receiving $100 today.
B) less valuable than receiving $100 today.
C) equal in value to receiving $100 today.
D) equal in value to receiving $101 today.

Question

Quizplus · Accepted Answer

Even with a zero interest rate, receiving $100 today or one year from now holds the same monetary value. However, due to the potential for inflation or the opportunity cost of not being able to use the money immediately, in practical terms, people might prefer to have the money now. But strictly from a financial calculation standpoint with a 0% interest rate, the present value of receiving $100 one year from now is equal to receiving $100 today.

If the Interest Rate Is Zero, a Promise to Receive