Question

Which of the following statements are correct? Assume APR=5%, compounded yearly. Select all that apply.

		A dollar received today is worth less than a dollar to be received after a year, assuming zero inflation.
		A dollar received today is worth more than a dollar to be received after a year, assuming zero inflation.
		If the yearly inflation rate is also 5%, the value of the dollar will not change after a year.
		None of the above.

Answer 1

Answer -

Interest rate is annual at APR 5%, hence the value of future US Dollar increase by 5%, however it is subject to inflation rate.

Statement no. 1 A dollar received today is worth less than a dollar to be received after a year, assuming zero inflation. This statement is true.

Statement no. 3 If the yearly inflation rate is also 5%, the value of the dollar will not change after a year.  This statement is true.

But Statement no-2 A dollar received today is worth more than a dollar to be received after a year, assuming zero inflation. This statement is false.

Net Result -Statement no 1 & 3 are true.