The present value and the interest rate have:
A)A direct relationship; they both move together
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 (PV) and the interest rate (i) have an inverse relationship. As i increases, PV decreases. This is because higher interest rates make the future cash flows worth more in today's dollars, so the PV of those cash flows decreases. Conversely, lower interest rates make future cash flows worth less in today's dollars, so the PV of those cash flows increases.

The Present Value and the Interest Rate Have