   Chapter 9, Problem 1CQQ

Chapter
Section
Textbook Problem

If the interest rate is zero, then $100 to be paid in 10 years has a present value that isa. less than$100.b. exactly $100.c. more than$100.d. indeterminate.

To determine

Calculation of present value of money.

Option “b” is correct.

Explanation

Option (b):

Present value of money can be calculated as follows.

Present value=Future value(1+Interest)Time period100=100(1+0)10100=1001100=100

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

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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