If you are anticipating having to pay $100,000 to a lender 10 years from now and the interest rate falls, the present value of this sum
A)falls.
B)rises.
C)remains unchanged.
D)becomes more uncertain.

Question

Quizplus · Accepted Answer

If the interest rate falls, it becomes cheaper to borrow money, which means that the lender is less likely to demand as much in repayment in order to recoup their investment. Therefore, the present value of the future $100,000 payment would be worth more in today's dollars, causing it to rise.

If You Are Anticipating Having to Pay $100,000 to a Lender