Asked by Shontae Stallworth on May 13, 2024
Verified
The present value of a future amount is:
A) that sum which if deposited today will grow into the future amount.
B) referred to as the discounted value of the future amount.
C) always smaller than the future amount, for positive interest rates.
D) All of the above
Present Value
The immediate value of a prospective amount of money or cash flow series, determined by a specific rate of return.
Future Amount
The predicted total value of an asset or investment at a specific future date, considering factors like interest rates or earnings.
Discounted Value
The present value of a future payment or series of payments, discounted back to the present time using a specific discount rate.
- Discern and employ the principle of time value of money in diverse financial settings.
- Shed light on the mechanism through which interest rates impact the valuation of assets for the present and future.
- Familiarize oneself with the approach and importance of discounting in establishing present values.
Verified Answer
ZA
Zoraida AyalaMay 17, 2024
Final Answer :
D
Explanation :
All three options are correct statements about the present value of a future amount. Option A explains that the present value is the amount that needs to be deposited today to grow into the future amount. Option B defines present value as the discounted value of the future amount, which means the future amount is reduced by the interest rate or discount rate. Option C correctly states that the present value is always smaller than the future amount, assuming a positive interest rate as money today is worth more than the same amount in the future.
Learning Objectives
- Discern and employ the principle of time value of money in diverse financial settings.
- Shed light on the mechanism through which interest rates impact the valuation of assets for the present and future.
- Familiarize oneself with the approach and importance of discounting in establishing present values.