If You Want to Know the Present Value of a Future

question 70

Multiple Choice

If you want to know the present value of a future payment received in 1 year,what formula can you use?

• A) Present value equals future payment times the current market rate of interest
• B) Present value equals future payment divided by one plus the rate of interest.
• C) Present value equals one plus the rate of interest in decimals divided by future payment.
• D) Present value equals future payments times one plus the rate of interest.

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Definitions:

Inflation Rates

The percentage rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling, usually measured over a specific period of time.

Inflation Rate

The percentage increase in the general price level of goods and services in an economy over a period of time, indicating the rate at which purchasing power is falling.

Money Demand

The desired holding of financial assets in the form of money; that is, cash or bank deposits.

Price Level

Price level is the average of current prices across the entire spectrum of goods and services produced in the economy, indicating inflation or deflation.