Under the concepts of the time value of money, you can determine the current, or present, value of a cash receipt or payment that will occur at some specified time in the future, given a specified rate of interest. This technique can be used to calculate the present value of a single or a series of future receipts or payments. Abigail and Caleb are walking after class between the library and the best pizzeria near campus. They’re discussing Dr. Johnson’s latest financial management lecture, which addressed the concept of present value and the process for calculating it. In anticipation of tomorrow’s quiz, they’ve decided to review their lecture notes and the textbook materials and then practice one or two problems. Complete the missing information in the conversation that follows. CALEB: So, what is a present value, and why is it important to be able to calculate it? ABIGAIL: According to Dr. Johnson, an asset’s present or value is the current value of the cash flows that it will pay or receive in the future.

From Abigail's speech, the present value or the discounted value of an asset is the current value of the cash flows which are to be paid or gotten at a date in the future.

The reason discounted is the answer is because cash flows in the future have to be brought to a date in the present. Instead of compounding, it is better to discount since compounding raises present value when placed side by side with future value.