The rate of return used when computing a present value is referred to as the ______ rate while the rate used when computing a future value is referred to as the _____ rate.
A) Compound; discount.
B) Compound; simple.
C) Compound; compound.
D) Discount; discount.
E) Discount; compound.

Question

Quizplus · Accepted Answer

The rate of return used when computing a present value is referred to as the discount rate, as it discounts future cash flows back to their present value. When computing a future value, the rate used is referred to as the compound rate, as it compounds the value of current funds over time.

The Rate of Return Used When Computing a Present Value