iginal value). C) The differences between the effects of discount rates become larger as the time to payment gets shorter. D) Tripling the discount rate decreases present value to a third of the original value (that is, 1/3 of the original value).
iginal value). C) The differences between the effects of discount rates become larger as the time to payment gets shorter. D) Tripling the discount rate decreases present value to a third of the original value (that is, 1/3 of the original value).
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
A) A discount rate of 0% means that payments are worth the same today and at all points in future.
B) Tripling the time to payment decreases present value to a third of the original value (that is, 1/3 of the original value).
C) The differences between the effects of discount rates become larger as the time to payment gets shorter.
D) Tripling the discount rate decreases present value to a third of the original value (that is, 1/3 of the original value).
Transcribed Image Text:The following table shows the present values of a $1 payment in the future,
discounted at different rates. For example, $1 paid in 10 years' time is worth
$0.82 today when discounted at 2% annually.
Discount rate (%)
Years in the future
1
10
50
100
0.0%
$1.00
$1.00
$1.00
$1.00
$1.00
1.0%
$1.00
$0.99
$0.90
$0.61
$0.37
2.0%
$1.00
$0.98
$0.82
$0.37
$0.14
5.0%
$1.00
$0.95
$0.61
$0.09
$0.01
Based on this information, which of the following statements is correct?
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