Which of the following statements is true?
A) Present value calculations involve converting the initial amount into a future amount.
B) The present value (PV) is often called the compounded value of future cash payments.
C) The present value is calculated by using the discount factor.
D) The future value of an investment is the reciprocal of its present value.

Question

Quizplus · Accepted Answer

The present value is calculated by using the discount factor, which is a percentage rate used to calculate the current worth of future cash payments. Option A is incorrect because PV calculations involve converting future amounts into their current (present) value. Option B is incorrect because the present value (PV) is the current value of future cash payments and is not compounded. Option D is incorrect because the future value is calculated by multiplying the present value with a factor that is dependent on the interest rate and the time period.

Which of the Following Statements Is True