Question

SPR :1120 C CUR . MARK HELP O PREV NEXT SUBMIT Custon 15 of 20 which compounded my nam e widow bachetusel Tomika Sporth wants to accunda 250.000 bert errement account in five yede With regard to the generals that color inancial concept known as the time value the best pardon MS Speisement account were instead of the B MS Speth's goal were to accumulate $250.000 in years of twee day and to meet her savings goal Gepost today order to meet her wings goal O both and O O only only O Nethet Anor U ::::: ::::

Answer 1

Single deposit required to be made now is the discounted value (Present Value) of the future sum needed to accumulate. Two factors determining the discounted value of a given sum is the discount rate (interest rate on deposit) and the period of deposit, apart from the compounding frequency.

When the interest rate is higher, discounted value will be lesser and vice versa. Hence, given the period is 5 years, if the interest rate is 8% instead of 4%, deposit to be made is smaller (and not larger as given in the statement A).

When period is longer, interest accumulated is higher. Hence holding the interest rate at 4%, if the period is nine years (instead of 5 years), amount of deposit to be made is smaller. The statement B is correct.

Hence the answer is ‘B Only’