The concept of present value
A) reveals that discount bonds have higher interest rates than coupon bonds.
B) reveals that fixed payment loans have higher interest rates than discount bonds.
C) is useful in comparing interest rates for different financial instruments.
D) limits the comparability of returns on different types of bonds.

Question

Quizplus · Accepted Answer

The concept of present value is often used to compare interest rates for different financial instruments by finding out the current value of future cash flows. Therefore, option C is correct. Option A is incorrect because discount bonds have lower interest rates than coupon bonds. Option B is incorrect because fixed payment loans have lower interest rates than discount bonds. Option D is incorrect because present value helps to compare returns on different types of bonds by accounting for the time value of money.

The Concept of Present Value