When computing a present value,which of the following is TRUE?
A)You should adjust the discount rate to match the time period of the cash flows.
B)You should adjust the future value to match the present value.
C)You should adjust the time period to match the present value.
D)You should adjust the cash flows to match the time period of the discount rate.
E)You should adjust the time period to match the future value.

Question

Quizplus · Accepted Answer

To compute the present value of cash flows, you need to discount the future cash flows using a discount rate that reflects the time value of money. The discount rate is typically expressed as an annual percentage, and you need to adjust it to match the time period of the cash flows you are valuing. For example, if you are valuing cash flows that occur over a period of two years, you need to use a discount rate that reflects the time value of money over two years, not one year or three years.

When Computing a Present Value,which of the Following Is TRUE