Discounting is the process of evaluating an equivalent value of money at an earlier point in time.

Discounting is the process of evaluating an equivalent value of money at an earlier point in time.

• A. Present value
• B. Discounting (opposite to compounding)
• C. Compounding (interest)
• D. Adjustment factor

Answer: (B)

Discounting deals with the time value of money by asking what a future sum is worth today. It uses a discount rate to bring a future cash flow back to its present value, so you’re evaluating the equivalent amount at an earlier point in time. This is the reverse of compounding, which grows money forward to a future value (FV = PV × (1 + r)^t). The present value is the amount you get when you apply discounting to a future sum, not the process itself. An adjustment factor isn’t a standard term for this concept.

Discounting deals with the time value of money by asking what a future sum is worth today. It uses a discount rate to bring a future cash flow back to its present value, so you’re evaluating the equivalent amount at an earlier point in time. This is the reverse of compounding, which grows money forward to a future value (FV = PV × (1 + r)^t). The present value is the amount you get when you apply discounting to a future sum, not the process itself. An adjustment factor isn’t a standard term for this concept.