If you (1) decrease your required return and (2) decrease the number of compounding periods, what effect would this have on your present value?
A) (1)decrease; (2)increase
B) (1)increase; (2)decrease
C) (1)increase; (2)increase
D) (1)decrease; (2)decrease

Question

Quizplus · Accepted Answer

Decreasing your required return increases the present value because the future cash flows are discounted at a lower rate, making them more valuable today. Decreasing the number of compounding periods also increases the present value because there is less time for the amount to grow, meaning you need less initial investment to reach a future value.

If You (1) Decrease Your Required Return and (2) Decrease