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True or False: The time value of money states that money received in the future is worth more than money received today. True False Read
True or False: The time value of money states that money received in the future is worth more than money received today.
True
False
Read the following text and answer the questions that follow.
The present value of a future cash flow is the amount of money that, given current and projected interest rates, would grow to equal the exact amount of the future cash flow. For example, if $ invested today would grow to $ in one year, then the present value of $ one year from now is equal to $ Mathematically, this can be stated as:
PVFVNIN
Where PV
represents the present value of a future value FV
N
time periods from now, at an interest rate of I
The process of calculating a present value from a future value as well as the interest rate and periods is referred to as discounting. The process of discounting is essentially the reverse of compounding whereby you compute a future value from a present value As is the case with compounding, discounting can be done via a stepbystep approach, a formula approach, using spreadsheet software such as excel and using a financial calculator. In the next stage of this problem, you will use a financial calculator to calculate present values in different scenarios.
According to the formula for calculating present values, an increase in the future value amount will the present value amount all else equal
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