Which of the following statements is true regarding the time value of money?a.Cash flows may arrive till infinity.b.Future value is always lower than the present value.c.Cash flows always have to be even.d.Cash flows cannot be negative.e.All of them.
Question
Which of the following statements is true regarding the time value of money?a.Cash flows may arrive till infinity.b.Future value is always lower than the present value.c.Cash flows always have to be even.d.Cash flows cannot be negative.e.All of them.
Solution
The correct answer is a. Cash flows may arrive till infinity.
The time value of money is the concept that money available today is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received.
The other statements are not necessarily true. Future value can be higher than the present value if the money is invested or earns interest. Cash flows do not always have to be even, they can vary. Cash flows can be negative, for example, when there are outgoing payments or expenses.
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