Discounting in the Present Value Method Makes the Distant Future

question 23

Multiple Choice

Discounting in the present value method makes the distant future cash flows:

• A)irrelevant.
• B)highly volatile.
• C)more significant.
• D)unpredictable.
• E)less significant.

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Definitions:

Effective Annual Rate

The annual interest rate that takes into account the effects of compounding over multiple periods.

Effective Rate

Reflects the total interest payable on a loan or investment, taking into account compounding interest, over a specific period.

Compounded Monthly

Interest on an investment or loan that is calculated each month and added to the principal sum, leading to exponential growth over time.