If the friend offers to pay you $1 five years from today, the present value will:
A)be higher than $1.
B)depend upon the prevailing interest rate.
C)be equal to zero, since you don't have the dollar.
D)not be important in understanding the time value of money.

Question

Quizplus · Accepted Answer

The present value will depend upon the prevailing interest rate as the time value of money takes into consideration the opportunity cost of investing money today versus receiving the payment in the future. The prevailing interest rate on investments can impact the present value of future payments.

If the Friend Offers to Pay You $1 Five Years