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Chapter 21: Q. 21.3LO (page 465)

Discuss how the interest rate performs a key role in allocating resources and calculate the present discounted value of a payment to be received at a future date

Short Answer

Expert verified

There is less danger than if the dollar were used in a long-term investment that may or may not produce the desired returns.

Step by step solution

01

Given Information.

This is because a cent today is employed to earn more money in the future, lowering the value of a dollar over time and resulting in a decrease in economic currency value.

02

Explanation.

  • Today’s dollar is additionally more valuable because there's less risk than if the dollar was during a long-term investment, which can or might not yield the expected results.
  • On the opposite hand, delaying payment from an investment could also be beneficial if there's a chance to earn interest.
  • The longer payment is delayed, the more available earning potential there's. this may be enticing to businesses and will persuade them to require onthe chance of deferment.

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