A change in the interest rate:
A) has a smaller impact on the present value of a payment to be made far into the future than on one to be made sooner.
B) will not make a difference in the present values of two equal payments to be made at different times.
C) has a larger impact on the present value of a payment to be made far into the future than on one to be made sooner.
D) has a larger impact on the present value of a bigger payment to be made far into the future than on one of lesser value.

Question

Quizplus · Accepted Answer

The impact of a change in interest rate on present value is greater for payments further into the future because there is a greater opportunity for interest to accumulate or decrease. For example, a small change in interest rate over 30 years will have a much larger impact on present value than the same small change in interest rate over 5 years.

A Change in the Interest Rate