Present value is defined as the:
A) Amount of money invested each time period for a stated number of periods.
B) Summation of the cash flows received within a specified period of time.
C) Value of future cash flows in today's dollars given a specific discount rate.
D) Compounded value of a principal amount given a specific rate of interest.
E) Value of an investment given simple interest for a specific period of time.

Question

Quizplus · Accepted Answer

Present value is the current worth of a future sum of money or stream of cash flows given a specified rate of return. It accounts for the time value of money, which is the concept that a dollar today is worth more than a dollar in the future due to its potential earning capacity. This is why option C is correct, as it accurately describes the process of discounting future cash flows to determine their value in today's dollars.

Present Value Is Defined as The