A wealthy relative promises to give you $5000 when you complete all of the college courses needed to earn a degree in business.The present value of this future sum must be which of the following?
A)Less than $5000, but the exact value depends on how long it takes you to earn your degree and the rate of interest you can earn on investments.
B)Less than $5000, but the exact value depends on how long it takes you to earn your degree and the exchange rate for the dollar.
C)More than $5000, but the exact value depends on the exchange rate for the dollar and the rate of interest you could earn on investments.
D)More than $5000, but the exact value depends on how long it takes you to earn your degree and the rate of interest you can earn on investments.

Question

Quizplus · Accepted Answer

The present value of a future sum is less than the future sum itself because it accounts for the time value of money, which depends on the interest rate and the time until the sum is received.

A Wealthy Relative Promises to Give You $5000 When You