Question

which of the following will lead to a lower present value of an annuity? a. Higher discount value b. Longer time period c. Higher annuity future value d. Higher payment amount

Answer 1

The answer will be option A because with a higher discount value or higher required rate of return the PV of the future cash flow will be lesser in comparison to a lower discount rate.

Whereas if our future cash flow value increases substantially with time then the second option gets ruled out.

The third option is logically not correct as with the increase of future cash flow value keeping all other parameters constant the NPV of the investment increases.

The fourth option speaks about the initial payment which might be high but if our future cash flows are good then it shouldn't impact or lower the NPV value much.