Homework Answers
PV of an annuity can be calculated using formula
PV = A*(1 - (1+r)^(-n))/r
So, when n increases, numerator increases and so PV increases. Statement I will increase PV
When interest rate decreases, denominator decreases and numerator increases simultaneously, and thus PV increases. Statement II will increase PV
Statement III will not increase PV.
When payment size decreases, numerator will decrease and so PV. So, Statement IV will not increase PV.
SO, only Statement I and II will increase PV, so option 5 is correct.
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