Questions: Select the best answers to fill in the blanks. The greater the rate at which time affects value, the effect on the value of an annuity. less of an more critical the present greater the positive negative

Solution Steps

To solve this problem, we need to understand the relationship between time, value, and annuities. The key concept here is the time value of money, which states that the value of money changes over time due to interest rates. The greater the rate at which time affects value (i.e., the interest rate), the greater the effect on the present value of an annuity. This is because a higher interest rate decreases the present value of future cash flows.

The problem involves understanding how the rate at which time affects value impacts the value of an annuity. This is a concept from the time value of money, which states that the value of money changes over time due to interest rates.

The present value of an annuity is calculated by discounting future cash flows to the present using an interest rate. The formula for the present value \( PV \) of an annuity is:

\[ PV = C \times \left(1 - (1 + r)^{-n}\right) / r \]

where \( C \) is the cash flow per period, \( r \) is the interest rate per period, and \( n \) is the number of periods. As the interest rate \( r \) increases, the present value \( PV \) decreases, indicating a greater effect on the present value.

Based on the analysis, the greater the rate at which time affects value (i.e., the interest rate), the greater the effect on the present value of an annuity. Therefore, the best answers to fill in the blanks are:

• For the first blank: "greater the"
• For the second blank: "present"

Final Answer