Question

1 As the interest rate increases, the present value of an annuity decreases. Group of answer choices False True

2 As the number of periods N increases, the future value of a savings account increases.

Group of answer choices

True

False

3

Forty years ago, Jordan purchased an investment for $10,000. The investment earned 5 percent rate of return each year. What is the worth of the investment today?

Group of answer choices

73,584.17

70,399.89

400,000.00

151,090.21

Answer 1

Answer to Question 1:

True

Interest rate and present value of an annuity are inversely proportionate to each other. If interest rate increases, then the present value of an annuity decreases. If interest rate decreases, then the present value of an annuity increases.

Answer to Question 2:

True

If number of periods increase, then number of times interest earned on the investment will also increase which leads to increase in the future value.

Answer to Question 3:

Amount Invested = $10,000
Time Period = 40 years
Interest Rate = 5%

Future Value = Amount Invested * (1 + Interest Rate)^Time Period
Future Value = $10,000 * 1.05^40
Future Value = $10,000 * 7.039989
Future Value = $70,399.89