Identify the correct equation for calculating the present value of an investment. (Assume 'r' stands for rate of return and 'n' stands for number of periods interest is earned.) A)Present value = Future value × (1 + r)ⁿ B)Present value = Future value + (1 + r)ⁿ C)Present value = Future value - (1 + r)ⁿ D)Present value = Future value / (1 + r)ⁿ E)Present value = Future value / ((1 + r) × n)

Question

Quizplus · Accepted Answer

The correct formula for calculating present value is Present value = Future value / (1 + r)n. This formula takes into account the effect of compounding interest over time and discounts the future value back to its present value. Therefore, option D is the correct choice. Option A is incorrect because it does not account for the discounting of future value. Option B and C are incorrect because they use addition and subtraction instead of division. Option E is incorrect because it uses an incorrect formula that does not consider the effect of compounding interest.

Identify the Correct Equation for Calculating the Present Value of an Investment