easy · Principles of Finance time-value-of-money
An investor is deciding between a certain payment of 105 in one year and an immediate payment of 100 today.
If the risk-free interest rate is 5%, which option is better based on the time value of money?
- They are equal in value.
- The $100 today is better.
- The $105 in one year is better.
- The comparison is impossible without knowing inflation.
Sign up free to see the explanation and track your rank →
More Principles of Finance time-value-of-money practice
- Which loan has the higher effective annual rate (EAR)?
- A perpetuity pays $100 every year forever. If the discount rate is 8%, what is the present
- According to the Pecking Order Theory, which of the following is a firm's least preferred
- What is the Multiple of Invested Capital (MOIC) for the equity investors?
- If the WACC is 10%, what is the Equivalent Annual Annuity (EAA) of Project A?
- What is the net profit per share for the investor?
- Using the formula for future value, what will the account balance be after 10 years?
- What is the primary difference between an 'Ordinary Annuity' and an 'Annuity Due'?