Question

All else held constant, the present value of an annuity will decrease if you:

1) increase the annuity's future value.
2) increase the payment amount.
3) increase the time period.
4) decrease the discount rate.
5) decrease the annuity payment.

Answer 1

The present value of an annuity will decrease if you decrease the annuity payment.

Step-by-step explanation:

The present value of an annuity is the current value of all future cash flows from the annuity, discounted at a certain interest rate. To answer your question:

1. Increasing the annuity's future value will not decrease the present value of the annuity. The present value will actually increase because there will be more cash flows to discount.
2. Increasing the payment amount will increase the present value of the annuity. This is because the cash flows are larger, and when discounted at the same interest rate, they will have a higher present value.
3. Increasing the time period will increase the present value of the annuity. More cash flows over a longer period of time will result in a higher present value.
4. Decreasing the discount rate will increase the present value of the annuity. When the discount rate is lower, the cash flows are discounted less, resulting in a higher present value.
5. Decreasing the annuity payment will decrease the present value of the annuity. Smaller cash flows will have a lower present value when discounted at the same interest rate.