The correct option that determines the present value of $1 if the interest rate is 10%.
Answer to Problem 3MCQ
Option c is correct.
Explanation of Solution
Explanation for the correct option:
c.
The present value of the dollar can be determined by using the following formula:
If the interest rate is 10%, then the present value of $1 received after a year will be $0.91 as there will be discounting effect. Therefore, option c is correct.
Explanation for incorrect options:
Since it is calculations-based, options a, b, d, and e are incorrect.
Interest rates: The rates that were charged by the investor who is ready to lend his/her money for a certain period of time to the borrower.
Present value of money: This is the concept that is used by every investor or financial dealer where the value of the dollar received today is compared with the value of the dollar that is expected to be received later by using interest rates.
Chapter 24 Solutions
Krugman's Economics For The Ap® Course
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education