Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

10. Time Value of Money

Time Value of Money Equations

Financial Accounting

10. Time Value of Money

Time Value of Money Equations

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Multiple Choice

Which one of the following will decrease the present value of an annuity?

Decreasing the interest rate

Increasing the interest rate

Decreasing the number of periods

Increasing the payment amount

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Verified step by step guidance

Understand the concept of present value of an annuity: The present value of an annuity is the current worth of a series of future payments, discounted at a specific interest rate. It is influenced by factors such as the interest rate, number of periods, and payment amount.

Analyze the impact of increasing the interest rate: When the interest rate increases, the discount factor becomes larger, which reduces the present value of future payments. This is because future payments are discounted more heavily.

Evaluate the effect of decreasing the number of periods: Reducing the number of periods means fewer payments are included in the annuity calculation. This decreases the total present value since there are fewer discounted cash flows.

Consider the impact of increasing the payment amount: Increasing the payment amount raises the total cash flows in the annuity, which increases the present value. This does not decrease the present value.

Conclude that the factors which decrease the present value of an annuity are increasing the interest rate and decreasing the number of periods, as both reduce the total discounted value of future payments.