The present value of receiving M dollars in year t when the prevailing interest rate is i is equal to

Question

Quizplus · Accepted Answer

The present value formula is M/(1+i)^t, where M is the future value, t is the number of years, and i is the interest rate. The answer in choice C is the correct formula with additional notation for present value factors (S, U, and P). Choice A is incorrect as it is missing the division by (1+i)^t. Choice B is incorrect as it multiplies M by (1-i) which is not a correct adjustment for present value. Choice D and E are incorrect as they both multiply M by i which is not a correct adjustment for present value.

The Present Value of Receiving M Dollars in Year T