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as the n stays the same and r decreases, present value: a. decreases b. stays the...

as the n stays the same and r decreases, present value:

a. decreases
b. stays the same
c. increases
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Answer #1

The correct answer is Option C (increases)

The formula for present value is as following:

Taking the example, If Future value is 1000, r as 10 % and n as 2, we will get this as:

Now, if the rate(r) falls to 8%, the present value shall be :

As stated above, the present value increased from $826.45 to $857.34 when the r falls and n remains the same.

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