Final answer:
The present value of $12,000 to be received in two years, with any positive discount rate, is less than $12,000. For example, using a similar bond example with an 8% interest rate, the discounted payment of $240 in the first year and $3,240 in the second year would be worth $3,000 total in today's terms.
Step-by-step explanation:
The student asked what the present value of $12,000 expected at graduation in two years would be considering a discount rate. The correct answer is b. Less than $12,000 because when you discount a future amount to its present value using any positive discount rate, the result is less than the future amount.
To illustrate using a similar example, consider a two-year bond issued at $3,000 with an 8% interest rate. The present value calculations for this bond, given both an 8% and 11% discount rate, would show it to be worth less in the present than its face value when the discount rate is applied. For instance, a $240 payment one year from now at an 8% discount rate would be $222.20 today, and the $3,240 total payment after two years discounted at the same rate would be $2,777.80 today, summing to a present value of $3,000 for the bond.