The higher the interest rate, the lower the PV and the higher the FV. The same relationships apply for the number of periods. The more time that passes, or the more interest accrued per period, the higher the FV will be if the PV is constant, and vice versa.
What happens to present value when interest rate increases?
As the interest rate rises the present value of an annuity decreases. This is because the higher the interest rate the lower the present value will need to be. The natural compounding factor of higher interest would necessitate a lower present value.
What is the relation between the present value of an investment and time and interest rate explain?
What is the relation between the present value of an investment and time and interest rate? explain. Q7-4 ANSWER: The present value of an investment is inversely related to both time and the interest rate.
Which relation is correct between present value future value and rate of interest?
The correct relationship between present value and future value interest factors is; d. The factors are reciprocals of each other.
Why is present value lower when interest rate is higher?
The present value is usually less than the future value because money has interest-earning potential, a characteristic referred to as the time value of money, except during times of zero- or negative interest rates, when the present value will be equal or more than the future value.
Which of the following describes the relationship between present value and future value?
Which of the following describes the relationship between present value and future value? When present value increases, the future value decreases, assuming all variables are constant. The more time that passes, the higher the present value and the lower the future value.
Does significantly higher interest rates lead to higher present value?
The higher the rate of interest, the more likely you will elect to invest your funds and forego current consumption. Future value focuses on the valuation of cash flows received over time, while present value focuses on the valuation of cash flows received at a point in time.
What is the relationship between the value of an annuity and the level of interest rates?
The relationship between the value of an annuity and the level of interest rates is that they are inversely proportional i.e. the higher the interest
What is the relationship between the future value of one and the present value of one?
What is the relationship between the future value of one and the present value of one? The present value of one equals one divided by the future value of one.
What is the difference between the present value and the future value of an amount?
Present value is the sum of money that must be invested in order to achieve a specific future goal. Future value is the dollar amount that will accrue over time when that sum is invested.
What are the relationships between compounding and discounting and present and future values?
Compounding of a present amount means what will we get tomorrow if we invest a certain sum today. Discounting of future sum means, what should we need to invest today to get the specified amount tomorrow. The future value factor table is referred to calculate the future value in case of compounding.
What clues are needed to determine the interest present value and future values?
To determine the present value of a future amount, you need two values: interest rate and duration. The interest rate determines how quickly a present amount grows over time, and the duration determines how much time the mount has to grow.
Do you want present value to be higher or lower?
Investors and businesses commonly use PV when assessing the rate of return for investments or projects. Investments with a higher discount rate will have a lower present value, while those with a lower discount rate will have a higher PV.
Is higher or lower present value better?
The Present Value is conversely related to the discount rate. Thus, a higher discount rate implies a lower present value and vice versa. Accurate determination of cash flows is, therefore, the key to appropriately valuing future cash flows, be it earnings or obligations.
What happens to the present value factor as the discount rate or the interest rate increases for a given time period?
6-9 For a given period of time, as the discount rate increases, the present value factor decreases. As the discount rate decreases, the present value factor increases.