Which of the following statements best reﬂects the concept of present value?
A) "The savings bond I bought ﬁve years ago is now worth $1,000."
B) "My $100 savings bond will be worth $200 in 10 years."
C) "You owe me $500, due at the end of the year, but I will reduce your debt to $450 if you pay me now."
D) "The $5,000 in my savings account is worth less today than ﬁve years ago because of inﬂation."

Question

Quizplus · Accepted Answer

The concept of present value is about the current value of a future payment or cash flow, taking into account the time value of money (i.e. the idea that money is worth more today than in the future). Option C best reflects this, as the creditor is offering a discount on the debt owed if it is paid earlier than the due date, recognizing that receiving the money earlier is more valuable to them than receiving it later. The other options are either discussing past value (option A) or future value (option B), or unrelated to the concept of present value (option D).

Which of the Following Statements Best Reﬂects the Concept of Present