The present value of a future sum decreases as either the discount rate or the number of periods per year increases, other things held constant.

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Quizplus · Accepted Answer

This statement is based on the concept of time value of money, which recognizes that the value of money changes over time due to the earning potential of investments and the effects of inflation. The present value of a future sum is lower when the discount rate (which reflects the opportunity cost of investing in one asset rather than another) is higher, as the present value calculation discounts the future value by the rate of return required by the investor. Similarly, the present value decreases when the number of compounding periods per year increases, as more frequent compounding increases the amount of interest earned on the investment over time. Therefore, if all else is held constant, either a higher discount rate or more frequent compounding reduces the present value of a future sum.

The Present Value of a Future Sum Decreases as Either