Which of the following is the most fundamental assumption in economics? A. At th

Question

Which of the following is the most fundamental assumption in economics?

A. At the same 4% annual interest rate, the future value of $1,000 in 5 years is higher than the future value of $1,000 in 6 years.

B. Future value is the equivalent amount you receive today for an amount you are going to receive at some future period.

C. At 4% annual interest rate, the present value of $1,000 you expect to receive 5 years from now is $1,000.

D. Present value is the equivalent amount you receive today for an amount you are going to receive at some future period

Explanation / Answer

The present value of an amount is the sum equivalent to a certain sum in the future. The sum yet to be received has lesser value or low yield in the present terms also known as discouting rate. A sum of 1000 to be received in future if taken today the value will be lesser. Because after certain period of the time the value of the currency depreciate due to the inflation and other factors in the economy. Time value of money says that a bird in the hand is better then the one in the bush. The value of money in hand of the future receipts will always be discounted by the rate at which one is benefitted by early payment. So D is the basic and fundamentakl statement.

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