Brief Principles of Macroeconomics...
Brief Principles of Macroeconomics...
If the interest rate is zero, then $100 to be paid in 10 years has a present value that is
a. less than $100.
b. exactly $100.
c. more than $100.
d. indeterminate.
Calculation of present value of money.
Option “b” is correct.
Option (b):
Present value of money can be calculated as follows.
Thus, the option “b” is correct.
Option (a):
The present value would be less than $100 if the interest rate is positive. Thus, the option ‘a’ is incorrect.
Option (c):
The present value is greater than $100, if the interest rate is negative. Thus, the option “c” is incorrect.
Option (d):
The present value can be determined by using future value, interest rate, and the time period. Thus, the option “d” is incorrect.
Concept introduction:
Present value: Thepresent value refers to the today’s value of the future amount that adjusted with the existing interest rate.
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