In the expression for present value of benefits (PVB), Σ(b_t/[1+r_s]^t), with b_t= B_t/(1 + p)^t, A) b_t represents incremental nominal benefits B) B_t represents incremental real benefits C) b_t represents incremental real benefits D) p stands for the opportunity cost of money

Question

Quizplus · Accepted Answer

The expression for present value of benefits (PVB) includes the term b_t, which represents the incremental real benefits. This is because b_t is defined as B_t/(1+p)^t, where B_t is the incremental nominal benefits and p is the inflation rate. Dividing the incremental nominal benefits by the inflation factor (1+p) converts them to real benefits, which are then discounted by the opportunity cost of money represented by the discount rate r_s. Therefore, option C is the best choice.

In the Expression for Present Value of Benefits (PVB), Σ(Bt/[1+rs]t)

In the Expression for Present Value of Benefits (PVB), Σ(B_t/[1+r_s]^t)