Question

Which of the following will decrease the present value of an annuity, other things equal? a....

Which of the following will decrease the present value of an annuity, other things equal?

a. increasing the discount rate.

b. decreasing the discount rate.

c. increasing the number of payments.

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Answer #1

(A) Increasing of the discounting rate will decrease the present value as when we will be increasing the discounting rate, it will mean that the overall discounting factor applied with the cash flows are higher and it would be leading to a lower net present value.

Decreasing of the discounting rate and increasing of the number of payment will be leading to increase in the present value of an annuity.

Correct answer will be option (A) increasing the discounting rate.

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