Holding everything else equal, the longer the time into the future The larger the discount factor...
Holding everything else equal, the longer the time into the future
- The larger the discount factor associated with the given time.
- The smaller the present value of the cash flow that takes place at the given time.
- Both
- Neither
Homework Answers
We know that
Discount factor = 1/(1+r)^t
and present value = FV/(1+r)^t
So when t increases, denominator in the formula increases hence both discount factor and present value decreases.
So, only option B is correct.
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