Question

if interest rates are positive, the future value of a given sum will always be less than the present value

Answer 1

False. If interest rates are positive, the future value will always be more than the present value.

Step-by-step explanation:

Future value is given by:

FV = PV
`(1 + i)^(n)`

wherein, FV= Future Value

PV= Present Value

i = rate of interest per period

n = number of periods

So, if interest rates are positive, the current investment shall be compounded to arrive at Future value which would turn out to be more than the present value.

For example, $ 100 invested today at 10% per annum, after an year would yield $110. This represents future value.

In case future value is provided as 110$ and rate of interest is given as 10% per annum, such future value discounted at 10% would give $100 today which represents the present value.

Thus, Future value will always be more than the present value if interest rates are positive.