Question

Less certain a cash flow, the ________ the risk, and ________ the present value of the cash flow. higher; lower lower; lower higher; higher lower; higher

Answer 1

I think it’s higher the risk and the lower present value

Answer 2

Answer: A. Higher; lower

Explanation: Less certain a cash​ flow, the​ ________ the​ risk, and​ ________ the present value of the cash flow.

A.

​higher; lower

B.

​higher; higher

C.

​lower; higher

D.

​lower; lower

The current value of a sum of money or streams of cash flow in the future are usually discounted. Safer assets do have lower discounted rates than riskier assets. Which is to say, when a cash flow has higher risks, it is discounted more making its value today lower. Future cash flows are discounted (at the discount rate), and the higher it is discounted, the lower the present value of the future cash flows.