True about time value of money

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Reference no: EM131952939

1. Which of the following is true about time value of money?

a. The further into the future, the larger the present value of a lump sum.

b. The further into the future, the lower the present value of a lump sum.

c. The present value of an annuity is always larger than the future value of the same annuity.

d. Present value of a lump sum is always greater than the future value.

e. None of the above

2. You are considering investing in two independent projects “A” and “B”. Project A requires an initial investment of $12,000. In one year, there is a 30% chance of a $10,500 return; a 50% chance of a $12,500 return; and a 20% chance of a $14,500 return. Project B requires an initial investment of $1,000. In one year, there is a 25% chance of a $950 return; a 25% chance of a $1,000 return; and a 50% chance of a $1,200 return. If you require a 7% return on your investment after one year, you should:

a. Accept A and reject B

b. Accept B and reject A

c. Accept both projects

d. Reject both projects

Reference no: EM131952939

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