Question

T/F I am willing to pay less for a series of future payments if my required return is high.

Answer 1

Hi,

Present value of future payment formula is following:

Present Value = Cash flow at time 0 + cash flow at time 1/(1+rate)^1 + cash flow at time 2/(1+rate)^2 +cash flow at time 3/(1+rate)^3 +cash flow at time 4/(1+rate)^4 +.........

As we can say that present value is inversely proportionate to required return rate if cash flow is constant.

So is required return is high, then initial payment will be lower

Hence statement is True here.

Thanks