LABOR ECONOMICS
8th Edition
ISBN: 9781260004724
Author: BORJAS
Publisher: RENT MCG
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Textbook Question
Chapter 6, Problem 1RQ
Discuss how the present value of a future income payment is calculated.
Expert Solution & Answer
To determine
The method of calculating the present value of future income payment.
Explanation of Solution
Calculation of the present value of future income payment makes it possible to compare income spent and received in different periods of time. The present value or the present discount value of a future payment can be calculated using Equation 1.
Calculated value of present value (PV) tells us how much needs to be invested today in order to have the future value.
Economics Concept Introduction
Present value: The present value refers to today’s value of a future cash flow that is adjusted with discount rate.
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