Question

The present value of an annuity considers which of the following factors? I. the timing of each cash flow II. the amount of each cash flow III. the discount rate IV. the number of cash flows

Answer 1

All of them.

Step-by-step explanation:

For considering the annuity formula we can determinate all the proposed factor:

`C * (1-(1+r)^(-time) )/(rate) = PV\\`

C represent II the amount of each cash flow

r = represent the discopunt rate

while time or "n" represent the numebr of cashflow we have to calcualte the present value.

The timing refer wether the payment are made at the beginning or end of the period.

When made at the beginning it is an annuity-due

and the (1+r) factor multiplies the previous formula to represent the addtional period of capitalization each cashflow has or the one period less to discount for each cashflwo in cases of prresent value.