Present value is defined as: A)future cash flows discounted to the present by an appropriate discount rate. B)inverse of future cash flows. C)present cash flows compounded into the future. D)future cash flows multiplied by the factor (1 + r)^t.

Question

Quizplus · Accepted Answer

Present value is the current value of a future stream of cash flows, discounted at an appropriate rate of interest to compensate for the time value of money and the risk associated with receiving the cash flows in the future. Option A accurately describes the concept of present value. Option B is incorrect as it describes the reciprocal or inverse of future cash flows. Option C describes the concept of compounding which is the process of generating future value. Option D is incorrect as it is a non-existent formula.

Present Value Is Defined As