PGMP · Question #23
You are the program manager for your organization. Management would like to consider the present value for your program. If your program is predicted to be worth $450,000 in two years what is the…
The correct answer is A. $400,498. Present Value (PV) is calculated using the formula PV = FV / (1 + r)^n, discounting a future cash flow back to today's dollars.
Question
You are the program manager for your organization. Management would like to consider the present value for your program. If your program is predicted to be worth $450,000 in two years what is the present value of the program if the interest rate is six percent?
Options
- A$400,498
- B$521,345
- C$505,620
- D$385,450
How the community answered
(33 responses)- A76% (25)
- B6% (2)
- C12% (4)
- D6% (2)
Why each option
Present Value (PV) is calculated using the formula PV = FV / (1 + r)^n, discounting a future cash flow back to today's dollars.
Applying the present value formula: PV = $450,000 / (1 + 0.06)^2 = $450,000 / 1.1236 = approximately $400,498. This discounts the future value of $450,000 over two years at a six percent interest rate back to its present-day equivalent, reflecting the time value of money.
$521,345 represents a future value calculation (compounding forward), not a present value discount.
$505,620 reflects compounding over one period or an incorrect interest application rather than discounting over two years.
$385,450 is a lower discount result that does not match the correct application of the six percent rate compounded over two years.
Concept tested: Present value calculation for program financial analysis
Source: https://www.pmi.org/learning/library/financial-concepts-program-managers-9310
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