139.The present value of a future payment increases if the: A) period between th

Question

139.The present value of a future payment increases if the:
A) period between the present and the future increases.
B) future payment decreases.
C) interest rate decreases.
D) stock market falls

140. The present value of a future payment decreases if the:
A) period between the present and the future increases.
B) future payment increases.
C) interest rate decreases.
D) stock market rises.

141. The present value of future payments depends on:
A) the size of the payment.
B) the length of the time period.
C) the interest rate.
D) all of the above.

142. Given an interest rate of 3 percent, the present value of a future payment of $2,080 to be paid in one year is:
A) $1,904.76
B) $2,000.00
C) $2,019.42
D) $2,080.00

Explanation / Answer

139.The present value of a future payment increases if the:
C) interest rate decreases.


Formula - present value of M dollars , PV = M/(1+i)^n
M = future payment , i = rate of interest, n = number of periods (period can be years, months, weeks)

(1+i)^n means (1+i) raised to n or (1+i) multiplied by itself n times.

Reason :
So, If 'i' decreases, and n remains same, PV will increase.


140. The present value of a future payment decreases if the:
A) period between the present and the future increases,

ie n increases. See above formula.

141. The present value of future payments depends on:
D) all of the above.

Look at the above formula. PV will change if you change i, n and m.

142. Given an interest rate of 3 percent, the present value of a future payment of $2,080 to be paid in one year is:

C) $2,019.42

i = 3% = 3/100 = 0.03

M = 2080

n = 1

PV = $ 2019.42

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