Question A The present value of a given amount decreases as the number of years

Question

Question A

The present value of a given amount decreases as the number of years over which it is to be discounted also decreases.

True—False

Question B

You have deposited $21,618 into a special account that has a guaranteed interest rate of 18% per year. If you are willing to completely exhaust the account, what is the maximum amount that you could withdraw at the end of the next 9 years? Select the amount below that is closest to your answer. (Ignore income taxes) Show your work.

(a)       $5,024

(b)       $7,080

(c)        $2,402

(d)       $2,834           

Question C

You have just deposited $5,188 into a special account that has a guaranteed interest rate. If you withdrew $1,400 at the end of each year for 7 years, you will completely exhaust the balance in the account. The guaranteed interest rate is closer to: (Ignore income taxes), Show your work.

(a)       13%

(b)       27%

(c)        19%

(d)       89%   

Explanation / Answer

Dear student, only one question is allowed at a time. I am answering the first question

Question A

Present value is directly related to time of discounting and the discount rate. Higher the time of discounting and higher the discount rate, lower will be the present value of an investment. This is because if an amount is discounted for a longer period and higher discount rate, the value of present value factor falls which results in lower present value

So, the statement given in the question is False

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