Which of the following statements is true?
A) The higher the discount rate, the higher the present value.
B) The process of accumulating interest on interest is referred to as discounting.
C) If money is worth 10% compounded annually, $1,100 due one year from today is equivalent to $1,000 today.
D) If a single sum is due on December 31, 2014, the present value of that sum decreases as the date draws closer to December 31, 2014.

Question

Quizplus · Accepted Answer

Option C is true as it represents the concept of present value and how it is affected by compounding interest rates. The higher the interest rate, the lower the present value. Option A is incorrect as it suggests an inverse relationship between the discount rate and present value. Option B is also incorrect as the process of accumulating interest on interest is referred to as compounding, not discounting. Option D is incorrect as the present value of a single sum increases as the date draws closer to the due date, as the time value of money decreases.

Which of the Following Statements Is True