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Karolina [17]
3 years ago
15

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 val

ue of this cash flow
Business
1 answer:
katovenus [111]3 years ago
3 0

Answer:

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.

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