Question

If all other factors remain the same, an increase in the number of periods will the future value of an investment. Multiple Choice increase decrease not affect

Answer 1

The correct answer is Option (A)

Formula for Calculation of the Future Value

FV = PV ( 1 + i)ⁿ

Where,

FV = Future Value

PV = Present Value

i = Rate of Interest

n = Number of Periods

If the number of periods or the 'n' is increased and all other factors remains same then, the factor multiplying with the present value will increase. Which leads to the greater value of Future value.

Note - Please also note that when the interest rate or the period is increased and all other things remains same then the Future value will increase or Present Value will decrease and vice versa.

Example

Suppose an investment of $10000 interset rate of which is 10% matured after 2 years.

The Future Valule of this investment will be-

Future Value = 10000 ( 1+ 10/100)² = $ 12100

Now, in the above example if the period of maturity becomes 4 years and all other things remain same then the Future value of the Investment will be-

Future value = 10000 (1 + 10/100)⁴ = $ 14641

So, the Future value will increase if the period is increased and all other things remain same.

Option (B) and Option (c) is wrong. If the Period increased and all other things remain same then the Future Value will only increase.