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Time Value of Money
Asked Mar 5, 2009, 11:00 AM
I answered all of them with bold but not quite sure if it's right or not. Please check which is one is wrong. Any help would be greatly apprecaited!
1. Suppose there is a financial security that promises to give you $5,000 eight years from today. All else constant, for a given nominal interest rate, a change from monthly compounding to annual compounding will cause the current price (i.e. the present value) of this security to _______________.
c. Remain the same.
d. Either increase or decrease depending on the number of years until the money is to be received.
e. None of the above.
2. A decrease in the interest rate (assuming positive interest rates) will ALWAYS cause the future value of some positive amount of money deposited today to decrease.
3. For N > 1 and I/Y > 0, the present value of an ordinary annuity is always greater than the present value of an annuity due and the future value of an ordinary annuity is always less than the future value of an annuity due.
4. An increase in the interest rate (assuming positive interest rates) will ALWAYS cause the present value of some positive amount of money to be received N (for example, 10) years from today to increase.