For calculating net present value (NPV), the interest rate represents the _____ of investing, so a higher interest rate _____ the NPV.

Question

Quizplus · Accepted Answer

The interest rate in NPV calculations represents the opportunity cost of investing, meaning the return that could have been earned if the money was invested elsewhere. Therefore, a higher interest rate increases the opportunity cost, which in turn reduces the NPV, as future cash flows are discounted more heavily.

For Calculating Net Present Value (NPV), the Interest Rate Represents