The present value of an annuity is worth more if interest rates are 5% instead of 10%.

Name: The present value of an annuity is worth more if interest rates are 5% instead of 10%.
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Question

The present value of an annuity is worth more if interest rates are 5% instead of 10%.​

Quizplus · Accepted Answer

When interest rates are lower, the discount rate used to calculate the present value of future cash flows is also lower, thus increasing the present value of an annuity. When interest rates are higher, the discount rate used is higher, thus decreasing the present value of an annuity.

The Present Value of an Annuity Is Worth More If