Concept explainers
a.
To discuss: The option that should be selected after comparing the present values.
It refers to the ability of the person to buy something. Purchasing power decreases with increase in inflation and increases with decrease in inflation. Because of purchasing power, individual adjust future inflow of cash according to the interest rate to get the present value of the money.
b.
To discuss: The option that should be selected after comparing the present values.
Purchasing Power:
It refers to the ability of the person to buy something. Purchasing power decreases with increase in inflation and increases with decrease in inflation. Because of purchasing power, individual adjust future inflow of cash according to the interest rate to get the present value of the money.
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