Question

Holding other things constant, which of the following will increase the present value of an annuity? I. Increase in the number of payments II. Increase in the interest rate III. Decrease in the interest rate IV. Decrease in the payment amount

Group of answer choices I, III, and IV only I and II only I and III only I, II, and IV only II and IV only

Answer 1

HI

Present Value of annuity = (C/r)*((1-(1+r)^-t)

Here C= payment amount

r = interest rate

t = number of payments

so we can see that if number of payment increases then present value of annuity increases.

also if interest rate decreases then present value increases

and if payment amount  increases then present value of annuity increases.

Hence first and third option is correct here.