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

A change in interest rate has a greater impact on the present value of a payment to be made far into the future than on one to be made sooner. This is because the interest rate affects the time value of money, and over time, even small changes in interest rates can have a significant impact on present values. Therefore, a payment that is made further into the future will be more affected by changes in interest rates than a payment that is due sooner.

A Change in the Interest Rate