BUISENESS MANAGEMENT
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Decrease the interest rate.
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Decrease the future value.
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Decrease the amount of time.
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All of the above will decrease the present value.
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Detailed explanation-1: -amount of time. Decreasing the future value would also decrease the present value. Decreasing the interest rate would also decrease the present value.
Detailed explanation-2: -Which of the following actions will DECREASE the present value of an investment? Decrease the future value.
Detailed explanation-3: -The answer is: d. So the three variables that could lower the present value are a higher rate of interest (higher discount rate), a lower future value, or a shorter time period.
Detailed explanation-4: -The lower the discount rate, the higher would be the present value of future cash flows.
Detailed explanation-5: -The major components that influence the present value are the interest rate, the period, and the cash flow. Investors should account for inflation by using the real rate of return (nominal interest rate the rate of inflation).