As the discount rate increases, the present value of $500 to be received six years from now:
A) Remains constant.
B) Also increases.
C) Decreases.
D) Becomes negative.
E) Will vary but the direction of the change is unknown.

Question

Quizplus · Accepted Answer

The present value of a future amount decreases as the discount rate increases, because a higher discount rate means future cash flows are discounted more heavily, reducing their present value.

As the Discount Rate Increases, the Present Value of $500