The Higher the Interest Rate Used in Determining the Future

question 53

Multiple Choice

The higher the interest rate used in determining the future value of a $1 annuity,

• A) the smaller the future value at the end of the period.
• B) the greater the future value at the end of a period.
• C) the greater the present value at the beginning of a period.
• D) None of these options. The interest has no effect on the future value of an annuity.

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Definitions:

Unit Sales

The quantity of products sold, not considering the sales price or revenue.

Margin Of Safety

Margin of safety represents the difference between actual sales and the break-even point, indicating the buffer a company has before it incurs a loss.

Percentage Of Sales

A method or analysis tool that expresses components of a financial statement as a percentage of total sales.

Variable Expense

Costs that fluctuate with the level of production or business activity, such as raw material costs and shipping fees.