Which of the following decisions would involve the use of the present value of $1?
A) Your brother buys your car and offers to pay you $500 per year for three years or $1,500 in two years.
B) You win a lawsuit and are offered a lump-sum payment today of $100,000 or $15,000 a year for 20 years.
C) Your father and mother wish to deposit enough money on the date of your high school graduation to enable you to take a cruise that will cost $7,000 when you graduate from college in 4 years.
D) You want to have $1,000,000 in order to retire at age 55, but need to know how much you will need to deposit each year from now until your 55th birthday.

Question

Quizplus · Accepted Answer

The present value of $1 is used to determine how much a future sum of money is worth today. In option C, calculating the amount needed today to reach a future goal of $7,000 in 4 years directly involves the present value of $1, as it requires determining the current worth of that future $7,000.

Which of the Following Decisions Would Involve the Use of the Present