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26 August, 23:21

If interest rates are positive the present value of a future lump sum of $100 will be

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  1. 27 August, 01:56
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    If interest rates are positive the present value of a future lump sum of $100 will be less than $100. The reason for this is that because the interest rate is positive this $100 will be discounted by the interest rate and number of years and so the present value will be less than the future lump sum value. We can see this in an example. If we assume that the future lump sum payment will be made 1 year from now and the interest rate is 5% we will discount the $100 by 5% to find the present value.

    Present value = 100/1.05=95.23, This proves that when interest rates are positive the present value will be less than the future value.
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