You are scheduled to receive $10 000 in one year. An increase in the interest rate will have what effect on the present value of this cash flow?
A)It will have no effect on the present value.
B)It will cause the present value to rise.
C)It will cause the present value to fall.
D)The effect cannot be determined with the information provided.

Question

Quizplus · Accepted Answer

An increase in interest rates will cause the present value of future cash flows to decrease, as the opportunity cost of not having the cash now becomes higher. Therefore, the present value of receiving $10 000 in one year will fall with an increase in interest rates.

You Are Scheduled to Receive $10 000 in One Year