Alice Says That the Present Value of $700 to Be

question 341

Multiple Choice

Alice says that the present value of $700 to be received one year from today if the interest rate is 6 percent is less than the present value of $700 to be received two years from today if the interest rate is 3 percent. Beth says that $700 saved for one year at 6 percent interest has a smaller future value than $700 saved for two years at 3 percent interest.

• A)Both Alice and Beth are correct.
• B)Both Alice and Beth are incorrect.
• C)Only Alice is correct.
• D)Only Beth is correct.

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Definitions:

Absolute Advantage

The ability of an entity to produce a good or service more efficiently than its competitors, using fewer resources.

Textiles

Materials made from fibers, filaments, threads, or yarns, typically used in the production of fabrics and cloth.

Comparative Advantage

The ability of an entity to produce a good or service at a lower opportunity cost compared to others.

Absolute Advantage

The ability of a country, individual, company, or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service.