The present discounted value of a future payment will increase when the
A)Interest rate decreases.
B)Future payment is moved further into the future.
C)Risk of nonpayment increases.
D)Opportunity cost of money increases.

Question

Quizplus · Accepted Answer

According to the principle of time value of money, the present discounted value of a future payment will increase when the interest rate decreases. This is because a lower interest rate means that the opportunity cost of money is lower, and therefore the future payment is worth more in present terms.

The Present Discounted Value of a Future Payment Will Increase