You are given two choices of investments,Investment A and Investment B.Both investments have the same future cash flows.Investment A has a discount rate of 4%,and Investment B has a discount rate of 5%.Which of the following is TRUE?
A)The present value of cash flows in Investment A is higher than the present value of cash flows in Investment B.
B)The present value of cash flows in Investment A is lower than the present value of cash flows in Investment B.
C)The present value of cash flows in Investment A is equal to the present value of cash flows in Investment B.
D)The present value of cash flows in Investment A is half the present value of cash flows in Investment B.
E)No comparison can be made - we need to know the cash flows to calculate the present value.

Question

Quizplus · Accepted Answer

Since Investment A has a lower discount rate than Investment B, its present value of cash flows will be higher. This is because a lower discount rate means that future cash flows are discounted less, resulting in a higher present value.

You Are Given Two Choices of Investments,Investment a and Investment