A wealthy relative promises to give you $5000 when you complete all of the college courses needed to earn a degree in business. What must the present value of this future sum be?
A) It must be 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) It must be 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) It must be 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) It must be 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 of money is always less than the future sum due to the time value of money, which is the concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. The exact value depends on the time it takes to earn the degree and the interest rate, as these factors affect how much the money could have grown if invested.

A Wealthy Relative Promises to Give You $5000 When You