If payments of $1000 are to be received every year for 20 years and if the interest rate is positive, the present value of this stream will
A)exceed $1000x20 ($20,000).
B)equal $1000x20 ($20,000)
C)be less than $1000x20 ($20,000).
D)increase as the interest rate increases.

Question

Quizplus · Accepted Answer

The present value of a stream of payments decreases as the interest rate increases, so it will be less than $1000x20 ($20,000). This is because the higher interest rate means that the money received in the future is worth less in present value terms.

If Payments of $1000 Are to Be Received Every Year