Suppose that the rate of interest increases.What will happen to the discounted present value of an investment?
A)It will increase.
B)It will decrease.
C)It will remain unchanged.
D)It depends on the magnitude of the change.

Question

Quizplus · Accepted Answer

The discounted present value of an investment is calculated using a discount rate, which represents the cost of capital or the opportunity cost of investing money. When the rate of interest increases, the discount rate also increases, resulting in a decrease in the discounted present value of the investment. This is because the higher discount rate makes future cash flows less valuable in today's dollars. Therefore, the correct answer is B, It will decrease.

Suppose That the Rate of Interest Increases