Question 66

Present value concept best shown by $1,000 in 12 yrs worth $620 today.

This example illustrates the present value concept by demonstrating how future money can be discounted to reflect its current worth. It emphasizes the time value of money, where $1,000 received in the future has a present value of only $620 today.

A) Exchange rate 1 USD = 1.10 CAD

This option represents a currency exchange rate rather than a present value calculation. It does not illustrate how the value of money changes over time, which is central to the present value concept.

B) $1,000 in 12 yrs worth $620 today

This option effectively illustrates the present value concept by showing the relationship between future cash flow and its current value. It quantifies how much a future sum is worth today, taking into account the time value of money.

C) $500 yields $50 dividends

While this option indicates a return on investment, it does not directly relate to the present value concept. It describes a cash flow scenario without addressing how future cash flows are valued in present terms.

D) Min wage indexed to CPI

This option discusses wage adjustments based on inflation, which does not directly relate to the present value concept. It focuses on maintaining purchasing power over time rather than valuing future cash flows in today's terms.

Conclusion

The option that best illustrates the present value concept is B, as it clearly demonstrates how future money is worth less today due to the time value of money. The other options fail to capture this key principle, either by focusing on exchange rates, returns on investments, or wage adjustments without addressing the current worth of future amounts.