If the interest rate rises,the present discounted value of a stream of payments owed in the future:

Question

Quizplus · Accepted Answer

An increase in interest rates leads to a decrease in the present discounted value of future payments. This is because a higher interest rate implies a higher opportunity cost of waiting for payments in the future. The future payments are worth less in present value terms since they can be invested at a higher rate of return now. Therefore, the correct option is (C), i.e., the present discounted value of a stream of payments owed in the future falls when the interest rate rises.

If the Interest Rate Rises,the Present Discounted Value of a Stream