The present value of money is always?

Question

a) less than its future amount.
b) the same as its future amount.
c) more than its future amount.
d) more or less than its future amount depending upon the discount rate.

Answer 1

In the event of a negative discount rate, which while unlikely, is possible (ie deflationary environments) then the future value could be more than the present value.

PV 100
r = -5%
Time = 2 years


FV = 100*(1-5%)^2
=90.25

So I guess not always...

Answer 2

A is correct.

The formula is from finance 101: PV=FV(1/1+i)nth power). The actual discount rate is determined by using a table of discount rates (which is derived logarithms).

For instance, for a period of 1 (n=1) and a discount rate of 1% (.990) 1000.00 PV is.....

990. It will always be less than the future value. Always.

Answer 3

d) since you can theorectically have negative interest rates. Plus you need to fingure in inflation.