Which of the following statements is/are true concerning the time value of money?

A) Money to be received seven years from now has a lower present value than money to be received in three years.
B) Money received seven years from now will have a lower present value if a higher discount rate is used.
C) Money received seven years from now will have a greater present value if a higher discount rate is used.
D) Money to be received seven years from now has a lower present value than money to be received in three years AND money received seven years from now will have a lower present value if a higher discount rate is used.

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Anwar Mohamed · Accepted Answer

Final Answer : D, Explanation :  The time value of money principle states that a dollar today is worth more than a dollar in the future due to its potential earning capacity. This principle implies that money received sooner rather than later is preferred because it can be invested to earn interest. Therefore, money to be received in three years has a higher present value than money to be received in seven years. Additionally, the present value of money received in the future decreases as the discount rate (or interest rate) increases, because the future cash flows are discounted back at a higher rate, reducing their present value.

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