Identify the correct expression for calculating the present value of an investment.
A) Present value = Future value × (1 + r)n
B) Present value = Future value + (1 + r)n
C) Present value = Future value - (1 + r)n
D) Present value = Future value / (1 + r)n
E) Present value = Future value / ((1 + r) × n)

Question

Quizplus · Accepted Answer

The correct expression for calculating the present value of an investment is the one that involves dividing the future value by the power of (1 + r) raised to n. This is because the present value represents the current worth of future cash flows, which is adjusted for the time value of money. The formula for present value considers the amount of money, the interest rate, and the number of periods involved. Therefore, the correct expression is D, Present value = Future value / (1 + r)n.

Identify the Correct Expression for Calculating the Present Value of an Investment