contestada

Your grandmother has promised to give you $10,000 when you graduate from college. She is expecting you to graduate three years from now. What happens to the present value of this gift if you speed up your graduation by one year and graduate two years from now? Multiple Choice Remains constant. Increases. Decreases. Becomes negative. Cannot be determined from the information provided.

Respuesta :

Answer:

Increases.

Explanation:

The concept of the present value based on the time value of money. That means the current money contains more value as compared to the future value as it would earn interest.

Since in the given situation, let us suppose there is a rate of interest i.e. 4% and the present value is $10,000 and when it would be received after three years it would be lesser received after two years

For 2 years, the present value is

= $10,000 × (1 ÷ 1.04^2)

= $9,245.56

For three years, the present value is

= $10,000 × (1 ÷ 1.04^3)

= $8,889.96

So in the given case, the present value of the gift would be increased

Otras preguntas