The present value of a promise to pay $100 one year from now would be greater if the interest rate were higher.

Question

Quizplus · Accepted Answer

The present value would actually be lower if the interest rate were higher, as the higher interest rate would make it more expensive to borrow money and pay back the $100 promise in the future. Therefore, the lender would demand a higher discount rate, resulting in a lower present value for the promise.

The Present Value of a Promise to Pay $100 One