If the interest rate is positive, the present value of $1000 to be received in ten years is
A)less than $1000.
B)greater than $1000.
C)equal to $1000.
D)either greater than $1000 or less than $1000, depending upon the interest rate

Question

Quizplus · Accepted Answer

If the interest rate is positive, then the present value of future cash flows is lower than the face value. This is due to the fact that money today is worth more than money in the future, as there is always some level of inflation or the opportunity cost of investing the money elsewhere. Therefore, the present value of $1000 to be received in ten years will be less than $1000 if the interest rate is positive.

If the Interest Rate Is Positive, the Present Value of $1000