Identify the reason for a discount factor for 20X5 to be less than a discount factor...
Identify the reason for a discount factor for 20X5 to be less than a discount factor for 20X4.
- A dollar on hand can be invested to provide returns.
- The present value is lesser than the future value.
- The risk free rate is always assumed to be near zero.
- Compounding has an effect only when more than five years are involved.
Homework Answers
OPTION A: A dollar on hand can be invested to provide returns.
EXPLANATION:
in 2014, the present value of an amount is more than present value of the same amount taken from 2015 because of the interest earned by investing that money for a year. fir the same amount, when invested, it’s present value becomes lesser and lesser by each year because of the interest earned on the investment.
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