Glossary

The Present Value of Your Dreams

#### Knowledge Check

We've talked a lot about present value and seen examples of it put to use.
Now that you understand it, you should be able to define it. Which of
the following is a definition of present value?

That's correct! Present value is the current value of a future amount of
money, or series of payments, evaluated at a given interest rate.

That's incorrect. This, in fact, is the definition of future value, not present
value. The correct response is A—present value is the current value
of a future sum of money, given a specified rate of return.

That's incorrect. The correct response is A—present value is the current
value of a future sum of money, given a specified rate of return.

Which of the following is the present value equation?

That's incorrect. Actually, this is the formula for future value, not present
value. The correct response is D—PV=FV[(1/(1 i)

^{n}]. When solving for present value, you have to know the future value, the interest rate, and the number of payments.That's incorrect. The correct response is D—PV=FV[(1/(1 i)

^{n}]. When solving for present value, you have to know the future value, the interest rate, and the number of payments.That's incorrect. The correct response is D—PV=FV[(1/(1 i)

^{n}]. When solving for present value, you have to know the future value, the interest rate, and the number of payments.That's correct! When solving for present value, you have to know the future
value, the interest rate, and the number of payments.