ECONOMICS
RISK AND RETURN
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
True
|
|
|
False
|
|
|
Either A or B
|
|
|
None of the above
|
Detailed explanation-1: -The present value of an annuity is the sum that must be invested now to guarantee a desired payment in the future, while its future value is the total that will be achieved over time.
Detailed explanation-2: -Discount Rate for Finding Present Value The discount rate is the investment rate of return that is applied to the present value calculation. In other words, the discount rate would be the forgone rate of return if an investor chose to accept an amount in the future versus the same amount today.
Detailed explanation-3: -The future value gets larger as you increase the interest rate. 5. What happens to a present value as you increase the discount rate? The present value gets smaller as you increase the discount rate.
Detailed explanation-4: -The present value formula is PV = FV/(1 + i) n where PV = present value, FV = future value, i = decimalized interest rate, and n = number of periods. The future value formula is FV = PV× (1 + i) n.