The present value and the interest rate have:
A) a direct relationship; as i increases, pv increases.
B) an inverse relationship; as i increases, pv decreases.
C) an unclear relationship; whether it is direct or inverse depends on the interest rate.
D) no relationship.

Question

Quizplus · Accepted Answer

The present value and the interest rate have an inverse relationship, meaning as the interest rate increases, the present value decreases. This is because a higher interest rate means that the future cash flows are discounted at a higher rate, which decreases their value in today's dollars. As a result, the present value of the cash flows also decreases.

The Present Value and the Interest Rate Have