What Is the Present Value (PV) of an Investment

question 57

Multiple Choice

What is the present value (PV) of an investment?

• A) the amount by which the cash flow of an investment exceeds or falls short of the cash flow generated by the same amount of money invested at the market rate
• B) the amount you need to invest at the current interest rate to re-create the cash flow from the investment
• C) the difference between the cost of the investment and the benefit of the investment in dollars today
• D) the amount that an investment would yield if the benefit were realised today

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Definitions:

Consumer Surplus

The difference between what consumers are willing to pay for a good or service and what they actually pay, representing the benefit consumers receive.

Producer Surplus

The difference between what producers are willing and able to supply a good for and the price they actually receive, measuring the benefit to producers.

Total Surplus

The total net gain to society from creating and consuming a product or service, encompassed by the combination of consumer and producer surplus.

Deadweight Loss

An inefficiency in the economy that results when the market equilibrium for a good or service isn't attained or is unattainable.