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Evaluating an Investment Principle
An investment advisor makes the following claim: "A change in the discount rate has a more significant effect on the present value for payments that are further in the future than for payments that are closer in time."
Using only the data provided in the table below, write a short essay evaluating the advisor's claim. Your response should use specific numerical examples from the table to support your conclusion.
Present Value of a Future $1 Payment
| Years in Future | 2% Discount Rate | 5% Discount Rate | 8% Discount Rate |
|---|---|---|---|
| 5 | $0.906 | $0.784 | $0.681 |
| 10 | $0.820 | $0.614 | $0.463 |
| 20 | $0.673 | $0.377 | $0.215 |
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Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Evaluation in Bloom's Taxonomy
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The table below shows the present value of a $1 payment to be received at a future date, given different time periods and annual discount rates.
Present Value of a Future $1 Payment
Years in Future 4% Discount Rate 6% Discount Rate 8% Discount Rate 5 $0.822 $0.747 $0.681 10 $0.676 $0.558 $0.463 15 $0.555 $0.417 $0.315 Based only on the information in this table, which of the following statements correctly describes a relationship between these factors?
Investment Decision Analysis
An investor is using the table below to compare two different investment options, each offering a single future payout.
Present Value of a Future $1 Payment
Years in Future 3% Discount Rate 5% Discount Rate 7% Discount Rate 5 $0.863 $0.784 $0.713 10 $0.744 $0.614 $0.508 15 $0.642 $0.481 $0.362 - Option X offers a $10,000 payment in 10 years, evaluated with a 7% discount rate.
- Option Y offers a $10,000 payment in 15 years, evaluated with a 3% discount rate.
Based on an analysis of the present values derived from this table, which statement is correct?
The table below shows the present value of a $1 payment to be received at a future date, given different time periods and annual discount rates.
Present Value of a Future $1 Payment
Years in Future 2% Discount Rate 5% Discount Rate 8% Discount Rate 5 $0.906 $0.784 $0.681 10 $0.820 $0.614 $0.463 15 $0.743 $0.481 $0.315 Statement: Based on the data in the table, a $1 payment received 15 years from now with a 2% discount rate has a higher present value than a $1 payment received 5 years from now with a 5% discount rate.
Resolving an Investment Disagreement
Evaluating an Investment Principle
You are an analyst evaluating several investment proposals. Using the provided present value table, match each investment proposal to the correct statement about its value.
Present Value of a Future $1 Payment
Years in Future 3% Discount Rate 6% Discount Rate 9% Discount Rate 5 $0.863 $0.747 $0.650 10 $0.744 $0.558 $0.422 20 $0.554 $0.312 $0.178 The table below shows the present value of a future $1 payment. You are set to receive a trust fund payment of $25,000 in 10 years. If the appropriate annual discount rate is 6%, the present value of your trust fund is $______. (Use the table for your calculation and enter a whole number without commas or symbols.)
Present Value of a Future $1 Payment
Years in Future 4% Discount Rate 6% Discount Rate 8% Discount Rate 5 $0.822 $0.747 $0.681 10 $0.676 $0.558 $0.463 15 $0.555 $0.417 $0.315 A financial advisor is evaluating four different investment opportunities for a client. Using the provided table, calculate the present value of each option and arrange them in order from the highest present value to the lowest present value.
Present Value of a Future $1 Payment
Years in Future 4% Discount Rate 6% Discount Rate 8% Discount Rate 5 $0.822 $0.747 $0.681 10 $0.676 $0.558 $0.463 15 $0.555 $0.417 $0.315 Resolving an Investment Disagreement