Question

Question 53

Which of the following statements is FALSE?

A. A dollar received one year from now will be worth more than a dollar received today.

B. A dollar received one year from now will be worth more than a dollar received two years from now.

C. Compounding essentially means earning interest on interest on an initial balance.

D. Perpetuities pay an equal payment forever.

BAM313 - INTRODUCTION TO FINANCIAL MANAGEMENT

Answer 1

According to the time value of money concepts, a dollar is worth more now than it will be worth later because we need to discount it back to the current period at an appropriate rate and which will be lower than a dollar. So statement A is false.

State B is correct according to TVM rule explained

Statement C is correct as the definition of compound interest is that the interest earned in one period also adds to the principal amount and earns interest in the next period

Statement D is also correct because a perpetuity is a perpetual annuity.