Which of the following is the best description of the relationship between present value (PV) and...

Which of the following is the best description of the relationship between present value (PV) and future value (FV)? 1) FV = PV + Interest Earned 2) PV = FV + Interest Earned 3) PV + FV = Interest Earned 4) PV = FV

Solutions

Expert Solution

Option (1) is correct

The relationship between present value and future value is:

FV = PV + Interest earned.

This is because when any amount is invested today (known as present value) at a discount rate or interest rate then it will earn some income (which is interest income) and will return a greater amount (which is future value) in the future, in the form of present value plus the interest earned.

jeff jeffy answered 1 year ago

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