Which of the following affects the present value of an investment?

Question

Quizplus · Accepted Answer

All of the factors listed (interest rate, number of time periods, and type of investment) can affect the present value of an investment. The interest rate directly affects the amount of future cash flows that are being discounted to present value. The longer the investment horizon (number of time periods), the greater the impact of compounding, which can increase the present value of an investment. The type of investment (annuity versus lump sum) can also affect the present value calculation since an annuity provides a regular stream of cash flows, while a lump sum provides a one-time payment.

Which of the Following Affects the Present Value of an Investment