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16 November, 08:39

Which one of the following statements is NOT true?

a. The value of a dollar invested at a positive interest rate grows over time.

b. The further in the future you receive a dollar, the less it is worth today.

c. A dollar in hand today is worth more than a dollar to be received in the future.

d. The further in the future you receive a dollar, the more it is worth today.

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  1. 16 November, 08:54
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    b. The further in the future you receive a dollar, the less it is worth today.

    Explanation:

    Any dollar received today is more valuable in future as on a normal level there will be some sort of earnings associated with it.

    Also, as further you receive a dollar the value of that dollar today is more as the discounting rate remains constant and with increasing number of years the discounting factor decreases.

    As for example if $100 is to be received after 1 year its value today @ 10% = $100/0.909 = $110.01

    If received at end of year 2 then value today = $100/0.826 = $121.06

    Therefore, as further a dollar is received in future, more it is worth in present today.

    Thus, out of all the above wrong statement is

    b. The further in the future you receive a dollar, the less it is worth today.
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