Your grandmother has promised to give you $5,000 when you graduate from college. She is expecting you to graduate two years from now. What happens to the present value of this gift if you delay your graduation by one year and graduate three years from now? a. remains constantb. Increasesc. Decreasesd. becomes negativee. cannot be determined

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2 June, 10:43

Your grandmother has promised to give you $5,000 when you graduate from college. She is expecting you to graduate two years from now. What happens to the present value of this gift if you delay your graduation by one year and graduate three years from now? a. remains constantb. Increasesc. Decreasesd. becomes negativee. cannot be determined

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Victor Summers · Answer 1

The correct answer is letter "C": Decreases.

Explanation:

The Present Value tells us how much a future sum of money is worth today given a specified rate of return. This is an important financial concept based on the principle that money received in the future is not worth as much as an equal sum received today.

In that sense, if the graduation is delayed one more year, the initial $5,000 (USD) will value lesser than if the graduation would have taken place only in two years now.