Which term is the value in today's prices, of a future cash flow?

• A. Range
• B. Normal distribution
• C. Present value
• D. Z-score

Answer: (C)

The value in today’s prices of a future cash flow is the present value. This reflects the time value of money—the idea that a sum received in the future is worth less today because you could invest today and earn a return. You calculate present value by discounting the future amount back to the present using a suitable rate: PV = Future amount ÷ (1 + r)^t. For example, 100 received in one year is worth about 95.24 today if the discount rate is 5%. The other terms don’t describe valuing a future cash flow in today’s money: a range is a spread, a normal distribution is a probability shape, and a Z-score is a standardized statistic.