LO 4.1.3: Calculate the present value (PV) for a situation.

Question 1

Discounting

Answer 1

The value today of a single amount that will be received in the future when discounted for a given number of periods at a given interest rate

Question 2

PV of a single amount (in time value of money terms)

Answer 2

• AKA. PV of a dollar
• AKA. discounting
• The value of today of a single amount to be received in the future when
  
  • discounted for a given number of periods
  • at a given interest rate.

Question 3

What does the PV of a single amount depend on

Answer 3

• the length of time before the single amount will be received and
• the annual (or some other time period, such as monthly, semiannually, or quarterly) interest rate or rate of return.

Question 4

The further into the future the dollar will be received, and/or the higher the interest (or discount) rate, ________________.

Answer 4

the lower the PV.