What is the formula for calculating present value (PV) from a future value (FV)?

The present value (PV) formula is used to determine the current worth of a sum of money that is to be received in the future, adjusted for a specified rate of return or discount rate, represented by 'i', over a certain number of periods, denoted as 'n'.

The correct answer correctly states PV = FV / (1 + i)n, which reflects the fundamental principle of the time value of money. This principle asserts that a specific amount of money today is worth more than the same amount in the future due to its potential earning capacity. By dividing the future value (FV) by the factor (1 + i)n, you are effectively discounting the future sum back to its present value, accounting for the interest rate applied over the specified number of periods.

This method allows for the evaluation of investment choices, financial planning, and understanding the impact of interest rates over time, making it a key concept in finance and risk management.