The present value of a dollar
1. increases as the interest rate increases
2. decreases as the interest rate increases
3. increases as the time period increases
4. decreases as the time period increases
A)1 and 3
B)1 and 4
C)2 and 3
D)2 and 4

Question

Quizplus · Accepted Answer

The present value of a dollar decreases as the interest rate increases because a higher interest rate means a dollar in the future is worth less today. Similarly, the present value decreases as the time period increases because money received in the future is worth less than money received today due to the potential for interest earnings over time.

The Present Value of a Dollar