Question

As the time period until receipt increases, what happens to the present value?

1) Increases
2) Decreases
3) Remains constant
4) Cannot be determined

Answer 1

As the time period until receipt increases, the present value decreases.

Step-by-step explanation:

When the time period until receipt increases, the present value decreases. This is because the present value is calculated by discounting future payments at an interest rate. As time goes by, the value of money decreases due to inflation and the opportunity cost of investing in other options. Therefore, the longer the time period until receipt, the lower the present value.