Which of the following statements are TRUE?
Statement I: As you increase the interest rate, the future value of an investment increases.
Statement II: As you increase the length of the investment (to receive some lump sum), the present value of the investment increases.
Statement III: The present value of an ordinary annuity is larger than the present value of an annuity due. (all else equal)
A) Statement I only
B) Statements I and II
C) Statement II only
D) Statements I and III only

Question

Quizplus · Accepted Answer

Statement I is true because increasing the interest rate increases the amount of interest earned, thus increasing the future value of an investment. Statement II is incorrect because increasing the length of the investment decreases the present value due to the time value of money. Statement III is incorrect because the present value of an annuity due is larger than that of an ordinary annuity, as payments for an annuity due are received one period sooner, increasing their present value.

Which of the Following Statements Are TRUE