Using the annuity rule, we can infer that an increase in the market interest rate from 5 to 10 percent will:

Question

Quizplus · Accepted Answer

The present value of an annuity is inversely related to the interest rate, meaning as the interest rate increases, the present value of the annuity decreases. Therefore, increasing the interest rate from 5 to 10 percent would reduce, not halve exactly in mathematical terms but significantly decrease, the present value of the annuity.

Using the Annuity Rule, We Can Infer That an Increase