Asked by Connor Dimarco on May 22, 2024
Verified
In general the present value of $1,000 received in the future will
A) be independent of the market rate of interest.
B) be lower,the higher the market rate of interest.
C) be lower,the lower the market rate of interest.
D) worth the same whether received one year from today or two years from today.
Market Rate of Interest
The prevailing interest rate available in the marketplace on loans and deposits, determined by the demand and supply of credit.
Present Value
The current worth of a future sum of money or stream of cash flows given a specified rate of return, used in evaluating investment opportunities.
- Understand the impact of interest rates on the present value of future funds.
Verified Answer
BV
Bui Van Cao (FU HN)May 22, 2024
Final Answer :
B
Explanation :
Present value is impacted by the time value of money and the prevailing market rate of interest. As market interest rates increase, the present value of future cash flows decreases because the opportunity cost of investing that money elsewhere is higher. Therefore, the present value of $1,000 received in the future will be lower, the higher the market rate of interest.
Learning Objectives
- Understand the impact of interest rates on the present value of future funds.