Associate Safety Professional Practice Exam

What is the correct formula to find the present value using future value?

1. P = F(1+i)^-n

2. F = A((1+i)^n - 1)

3. P = A((1+i)^n - 1) / i

4. P = F(1+i)^n

The correct answer is: P = F(1+i)^-n

The correct formula to find the present value using future value is represented as P = F(1+i)^-n. This formula is used to determine how much a future sum of money is worth in today’s dollars, accounting for interest rates and the time period over which the money will grow. In this formula: - P stands for the present value, - F represents the future value, - i is the interest rate per period, and - n is the number of periods. The formula demonstrates the inverse relationship of present and future values. By applying (1+i)^-n, it effectively discounts the future sum back to the present time. The negative exponent in this context indicates that we are looking for the present worth of a future investment, reducing its value due to the time value of money. The longer the period (n), or the higher the interest rate (i), the lower the present value will be in relation to the future value. This principle is essential in financial decision-making, allowing individuals and businesses to evaluate investments and understand the worth of money over time. Each of the other options presents alternative financial formulas used in specific contexts, such as future value calculations, but they do not represent the correct approach for calculating present value from future