The present value of money is based upon the value of your "next-best" opportunity for investment at a particular ROI. If this value is 10%, it is better to get $10,000 at the end of the first year than ________ today.

Question

Quizplus · Accepted Answer

The present value of money is calculated based on the future value divided by (1 + rate of interest)^number of periods. Here, $10,000 at the end of the first year with a 10% interest rate would have a present value of $10,000 / (1 + 0.10)^1 = $9,090.91. Therefore, it is better to get $10,000 at the end of the first year than $9,090 today, as it indicates the money today is worth less than $10,000 in a year at a 10% ROI.

The Present Value of Money Is Based Upon the Value