Question

Your parents have promised to give you $8,000 when you graduate with your undergraduate business degree. They think you should be able to graduate four years from now. What happens to the present value of this gift if you delay your graduation by one year and graduate five years from now?

a. Cannot be determined from the information provided.
b. Becomes negative.
c. Decreases.
d. Remains constant.

Answer 1

Answer: Decrease

Step-by-step explanation:

From the question, we are informed that my parents have promised to give me $8,000 when I graduate with an undergraduate business degree and they think I should be able to graduate four years from now.

The present value of this gift will reduce if I delay the graduation by one year and graduate five years from now. It should be noted that the present value is simply sum of money which has to be invested to have a particular future goal and in this case since the time has increased, the present value of the gift will reduce.