Question

Given an imterst rate of 1%, the future value of a lump sum invested today will always:

A. remain constant, regardless of the investment time period.

B. decrease if the investment time period is shortened.

C. decrease if the investment time period is lengthened.

D. be equal to $0

Answer 1

The correct answer is B

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FV = PV (1 + r)^n

Future value is directly related to the interest rate and time period.

So the FV will increase with increase in the time period and decrease when the investment period is shortened.

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Hope that helps.

Feel free to comment if you need further assistance J