Mike Westfield is analyzing ordinary annuity investment by calculating the sum of the present values of its
Question:
Mike Westfield is analyzing ordinary annuity investment by calculating the sum of the present values of its expected cash flows. Assuming an interest rate greater than 0% , which of the following would decrease the present value of the investment?
a. Using a lower interest rate.
b. The riskiness of the investment's cash flows decreases.
c. Reducing the size of the annual payments by half (e.g., reducing the annual payment from $100 to $50) while doubling the number of annual payments (e.g., doubling the number of annual payments from 10 to 20).
d. Doubling the size of the annual payments (e.g., doubling the annual payment from $100 to $200) while reducing the number of annual payments by half (e.g., reducing the number of annual payments from 10 to 5).
e. None of the above will decrease the present value of the investment.
Fundamentals Of Financial Management
ISBN: 9781111795207
11th Edition
Authors: Richard Bulliet, Eugene F Brigham, Brigham/ Houston