How are present values affected by changes in interest rates? A. The lower the interest rate, the larger the present value will be. B. The higher the interest rate, the larger the present value will be. C. Present values are not affected by changes in interest rates. D. One would need to know the future value in order to determine the impact

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08-10-2019
Business

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How are present values affected by changes in interest rates? A. The lower the interest rate, the larger the present value will be. B. The higher the interest rate, the larger the present value will be. C. Present values are not affected by changes in interest rates. D. One would need to know the future value in order to determine the impact

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Nyctalus Nyctalus · Answer 1 · 2019-10-10T11:31:43+02:00

Answer: Option A

Explanation: In simple words, present value refers to the value of future cash flows in the present time in respect to monetary terms. It is calculated by discounting back the future cash flows with the current interest rate in the market.

Thus, if the interest rate declines in the market the value will be greater as the discounting factor will be smaller.

Hence the correct option is A .