Business, 05.09.2020 04:01 boo8181

The present value of a future sum increases as either the discount rate or the number of periods per year increases, other things held constant. A. TrueB. False

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Answer from: brevenb375

B. False

Explanation:

The present value of a future sum is the value in today's term of a sum of amount calculated by taking the future cash flow or amount and discounting it back to today's value using an appropriate discount rate and time period. The formula for present value of a sum of amount is,

PV = FV / (1+r)^t

Where,

PV is the present valueFV is the future valuer is the discount ratet is the time in number of periods

The statement that " The present value of a future sum increases as either the discount rate or the number of periods per year increases, other things held constant. " is false as the present value falls in both the scenarios as can be seen by the following example.

Let FV be $5000.

r = 5%

t = 10

PV = 5000 / (1.05)^10

PV = $3069.57

Now if the r or discount rate is increased to 10% and other things remain constant,

PV = 5000 / (1.10)^10

PV = $1927.72

As a result of increasing discount rate, the PV falls.

Now taking the initial r or discount rate but increasing the time periods to 15 and other things remain constant,

PV = 5000 / (1.05)^15

PV = $2405.09

As a result, the PV also fell as compared to the initial PV.

Answer from: Quest

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.

Answer from: Quest

The correct answer is "a.grassroots movements".

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