Ask Question
18 January, 20:04

You are scheduled to receive $10,000 in one year. What will be the effect of an increase in the interest rate on the present value of this cash flow

+2
Answers (1)
  1. 18 January, 23:45
    0
    The present value of this cash flow will be decreased following the increase in the interest rate.

    Explanation:

    We have the formula for calculating present value is:

    PV = FV / (1+r) ^n

    where:

    PV is the present value

    FV is the future value which is $10,000 in the described question

    r is the discount rate which is the interest rate

    n is the number of discounting periods which is one year in the described question

    So, once the interest rate increase, the denominator - (1+r) ^n - will increase. Then, if FV remains constant, PV will decrease.

    So, The present value of this cash flow will be decreased following the increase in the interest rate.
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “You are scheduled to receive $10,000 in one year. What will be the effect of an increase in the interest rate on the present value of this ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers