Question
Consider a LUMP SUM of cash to be received at some point in the future. All other things held equal, which of the following statements
Consider aLUMP SUMof cash to be received at some point in the future. All other things held equal, which of the following statements isMOSTcorrect?
An increase in theDISCOUNT RATEwill cause thePRESENT VALUEof the lump sum to be worth less.
For a given (and known) present value, an increase in theCOMPOUNDING RATEof interest will cause theFUTURE VALUEto be worth more.
Given a constant interest rate, an increase in the number of compounding (or discounting) periodsPER YEARwill cause the PRESENT VALUE to be worthLESSand the FUTURE VALUE to be worthMORE.
All three of the previous statements areTRUE.
NONEof these statements is true.
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