Question

The present value of cash flow will be greater if we compound less frequently holding the stated interest rate constant. a. true b. false

Answer 1

The present value of cash flow will be greater if we compound less frequently holding the stated interest rate constant.  true

What is interest rate constant?

A proportion that compares a loan's annual debt service to the sum of its principal is known as a loan constant. The annual debt service is divided by the total loan amount to determine a loan constant. Borrowers can compare the loan constants of several loans when looking for a loan before choosing one. The loan with the lowest loan constant will have reduced debt service obligations, resulting in a shorter length of time during which the borrower will pay less in interest and principal. Only loans with fixed interest rates are subject to loan constants; loans with variable interest rates are not.

A loan constant is a ratio that illustrates the annual debt service of a loan in relation to the entire loan principal.

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