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1. How does an increase in interest rates affect the present value of a future payment?

2. How does an increase in the size of a future payment affect the present value of a future payment?

3. Two payments of $1,000 are to be made. One of them will be paid one year from today and the other will be paid two years from today. Which has the greater present value? Why?

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Raushan Raj
Raushan RajLv8
28 Sep 2019

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Related questions


139.The present value of a future payment increases if the:
A) period between the present and the future increases.
B) future payment decreases.
C) interest rate decreases.
D) stock market falls

140. The present value of a future payment decreases if the:
A) period between the present and the future increases.
B) future payment increases.
C) interest rate decreases.
D) stock market rises.

141. The present value of future payments depends on:
A) the size of the payment.
B) the length of the time period.
C) the interest rate.
D) all of the above.

142. Given an interest rate of 3 percent, the present value of afuture payment of $2,080 to be paid in one year is:
A) $1,904.76
B) $2,000.00
C) $2,019.42
D) $2,080.00

Suppose you win a small lottery and have the choice of two ways to be paid: You can accept the money in a lump sum or in a series of payments over time. If you pick the lump sum, you get $2,750 today. If you pick payments over time, you get three payments: $1,000 today, $1,000 1 year from today, and $1,000 2 years from today.

1. At an interest rate of 9% per year, the winner would be better off accepting the (lump sum or payments over time) since it has the greater present value.

2. At an interest rate of 11% per year, the winner would be better off accepting (lump sum or payments over time , since it has the greater present value.

1. You are in a car​ accident, and you receive an insurance settlement of $6500 per year for the next three years. The first payment is to be received today. The second payment is to be received one year from​ today, and the third payment two years from today. If the interest rate is 3​%, the present value of the insurance settlement is ?

2. If a lender makes a simple loan of $700 for 4 years and charges 3​%, then the amount that the lender receive at maturity is ?

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