Your grandmother has promised to give you $10,000 when you graduate from college. If you speed up your graduation by one year and graduate two years from now rather than the expected three years, the present value of this gift will:
A) remain constant.
B) increase.
C) decrease.
D) equal $10,000.
E) be less than $10,000.

Question

Quizplus · Accepted Answer

The present value of the gift will increase if you graduate earlier because the value of money received sooner is higher due to the potential for earning interest or investing it for a return. By receiving the $10,000 one year earlier, you can invest or use it, which makes its present value higher than if you had to wait an additional year.

Your Grandmother Has Promised to Give You $10,000 When You