The present value of $10000 to be received in 5 years will be smaller if the discount rate is
A) increased.
B) decreased.
C) not changed.
D) equal to the stated rate of interest.

Question

Quizplus · Accepted Answer

The present value of a future cash flow decreases as the discount rate increases. This is because a higher discount rate reflects a higher opportunity cost of waiting for the cash flow, making it worth less in today's dollars. Therefore, if the discount rate is increased, the present value of $10000 to be received in 5 years will be smaller.

The Present Value of $10000 to Be Received in 5