The greater the interest rate, the_______ _ the present value and the _________ the discount factor.
A)larger; larger
B)larger; smaller
C)smaller; larger
D)smaller; smaller

Question

Quizplus · Accepted Answer

The greater the interest rate, the smaller the present value because future cash flows are discounted more heavily. Similarly, the discount factor, which is used to calculate the present value, becomes smaller as the interest rate increases.

The Greater the Interest Rate, The_______ _ the Present Value