Begin with a single sum of money at period 0.First,calculate a future value of that sum at 12.01%.Then discount that future value back to period 0 at 11.99%.In relation to the initial single sum,the discounted future value:

Question

Quizplus · Accepted Answer

The future value at 12.01% is higher than the original amount because of the interest earned. When this future value is discounted back to period 0 at a slightly lower rate of 11.99%, the value should still be higher than the original amount, although not by as much as it would have been if the discount rate were the same as the interest rate. Therefore, the discounted future value is greater than the original amount.

Begin with a Single Sum of Money at Period 0