Question

Which of the following statements is false?

a. If the discount (or interest) rate is positive, the future value of an expected series of payments will always exceed the present value of the same series.

b. To increase present consumption beyond present income normally requires either the payment of interest or else an opportunity cost of interest foregone.

c. Disregarding risk, if money has time value, it is impossible for the present value of a given sum to be greater than its future value.

d. Disregarding risk, if the present value of a sum is equal to its future value, either r = 0 or t = 0.

e. Each of the above statements is true.

Answer 1

Answer:

Correct answer is:

e. Each of the above statements is true.

Explanation:

FV = PV * (1 + r) ^t

Where FV = Future value, PV = Present value, r = Rate of interest and t = Number of periods

Hence since r > 0 and t > 0, FV > PV

FV can be = PV if either t = 0 or r = 0

Hence options A, C and D are true

The difference between consumption and income is saving. Saving earns interest and same is available for consumption in next period. Hence in periods of boom, people can spend beyond income. As such option B is also true.

Hence option E is correct.