If the interest rate is 0%:
A)future amounts have zero present value.
B)future amounts have an infinite present value.
C)the present value of amounts to be received in the future is equal to the sum of those amounts.
D)the future value of an investment is less than the sum of its cash flows.

Question

Quizplus · Accepted Answer

When the interest rate is 0%, the present value of future amounts is equal to the sum of those amounts. This is because there is no discounting of future amounts, so they are worth their full face value in the present. Option A is incorrect because future amounts still have some value in the present, even if the interest rate is 0%. Option B is incorrect because while the present value of future amounts may be higher at a 0% interest rate, it is not infinite. Option D is incorrect because the future value of an investment may be equal to or greater than the sum of its cash flows, depending on the interest rate and other factors.

If the Interest Rate Is 0