Why Is the Present Value of an Amount to Be

question 81

Multiple Choice

Why is the present value of an amount to be received (paid) in the future less than the future amount?

• A) Deflation causes investors to lose purchasing power when their Rands are invested for greater than one year.
• B) Investors have the opportunity to earn positive rates of return, so any amount invested today should grow to a larger amount in the future.
• C) Investments generally are not as good as those who sell them suggest, so investors usually are not willing to pay full face value for such investments, thus the price is discounted.
• D) Because investors are taxed on the income received from investments they never will buy an investment for the amount expected to be received in the future.
• E) None of the above is a correct answer.

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Definitions:

Identical Characteristics

A term describing goods, services, or entities that have the same attributes and qualities, making them indistinguishable in certain respects.

Wage Differentials

The variations in wage rates due to differences in occupation, sector, qualifications, and experience among workers.

Labor Market

A marketplace where employers find workers and workers find jobs, governed by supply and demand for labor.

Productivity Differences

Variations in the efficiency and effectiveness with which firms or economies turn inputs into outputs.