Fundamentals of Business Intelligence (FBI) Practice Exam

True or False: Present Value (PV) in the calculation refers to the initial amount invested in an account.

1. True

2. False

3. Only for savings accounts

4. Only for loans

The correct answer is: True

Present Value (PV) refers to the current worth of a sum of money that will be received or paid in the future, discounted back to the present at a specified interest rate. In financial terms, when discussing investments, the present value can indeed be seen as the amount invested today, which will grow over time due to interest. This concept directly relates to how future cash flows are valued in today's terms. Therefore, when stating that PV refers to the initial amount invested, it reflects the idea that this initial amount will generate returns or accrue interest over time, leading to a future value that is higher than the present value. In contrast, the other options present contexts that either limit or misinterpret what PV encompasses, as PV is a fundamental concept used in various financial scenarios beyond just investments or savings accounts. This broader application reinforces the idea that PV can represent the initial investment in many financial contexts.