Question

Present value is: a. The future value of a current amount of money evaluated at a given interest rate. b. The current value of a future amount of money, or a series of payments evaluated at a given interest rate. c. The value of an amount of money at a specific future date that is equivalent to a specified sum of money today.

Answer 1

Answer:

B) The current value of a future amount of money, or a series of payments evaluated at a given interest rate.

Explanation:

One of the basic premises of finance is that the value of money changes in time, i.e. one dollar today is worth more than one dollar tomorrow.

The present value refers to the current value of a future amount of money or a series of future cash flows. It can be calculated using the present value formula:

present value = future value / (1 + r)ⁿ

• r = discount or interest rate
• n = number of periods, e.g. years, months
• future value = the nominal future value of the amount of money

for example, $100 received in 1 year using a 5% discount rate:

present value = $100 / (1 + 5%)¹ = $95.24 of today's money

Answer 2

Answer:

Explanation:

Present value is calculated as the discounted sum of either a fixed amount or a series of payments in the future, at a given interest rates.

For example, at an interest of 5%, $100 in 10 years will be valued at $100 / 1.05^10 = $61.39 today