The present value of a future payment:
A)decreases when the interest rate rises.
B)decreases when the interest rate falls.
C)decreases when the interest rate stays the same.
D)never changes regardless of the interest rate.

Question

Quizplus · Accepted Answer

The present value of a future payment is determined by discounting the future value to the present using an interest rate. As the interest rate increases, the present value will decrease because the future value is being discounted at a higher rate. Conversely, when the interest rate falls, the present value will increase because the future value is being discounted at a lower rate. Therefore, option A is the correct choice.

The Present Value of a Future Payment