Why is the present value of an amount to be received (paid) in the future less t

Question

Why is the present value of an amount to be received (paid) in the future less than the future amount?
a. Deflation causes investors to lose purchasing power when their dollars are invested for greater than one year.
b. Investors have the opportunity to earn positive rates of return, so any amount invested today should grow to a larger amount in the future.
c. Investments generally are not as good as those who sell them suggest, so investors usually are not willing to pay full face value for such investments, thus the price is discounted.
d. Because investors are taxed on the income received from investments they never will buy an investment for the amount expected to be received in the future.
e. None of the above is a correct answer.

Explanation / Answer

b. Investors have the opportunity to earn positive rates of return, so any amount invested today should grow to a larger amount in the future.

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