# 1. Briefly explain the meaning of the term “present value” in your own words. MBA 620

1. Describe briefly the meaning of “present value” using your own words. 2. Explain the definition of “future Value” briefly in your own words. 3. Is \$1,500 worth of future earnings if it is financed at a rate of 4.955% over five years? 4. Which of the following features is most likely to increase the value of an individual payment?
MBA 620
CONTENT
Present value is the idea that the money in the future will be worth less than what it was today (Fernando 2021). The idea of present value states that money acquired in the future will be less valuable than the money received in the current. A \$1,000 gift is now worth much more than a \$1,000 gift after five years. Why? You can invest \$1,000 today with the expectation that you will earn a return in the next 5 years (Fernando 2021). The present value of an investment is used to determine the interest rate it could earn. If an investor gets \$1,000 today and is able to earn a 5% annual rate, then the 1,000 received would undoubtedly be worth more than the \$1,000 they would receive in five years. However, the investor could lose out on any future returns if they wait five years before receiving \$1,000. Future value (FV), which is the estimated future value of an asset, refers to the present value of the asset as a function of the expected growth rate in the future. Future value is important for financial planners and financiers as they can use it to forecast the return on an investment. Cont…

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