Randy has to choose between two cash flows. He could either receive the future value of an investment of $1,000 at 8 percent annually in three years or in five years. Randy should always choose the shorter investment term because it is worth more today.

Question

Quizplus · Accepted Answer

This statement is false. The time value of money principle tells us that the longer the investment term, the higher the future value will be. Therefore, receiving the future value in five years will be worth more than receiving it in three years.

Randy Has to Choose Between Two Cash Flows