Question

Which of the following describes the relationship between present value and future value?

The higher the interest rate, the higher the present value and the lower the future value.

When one increases, the other increases, assuming all variables are constant.

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.

Answer 1

Option B is the correct answer i.e. When one increases, the other increases, assuming all variables are constant.

Option A is not correct because the higher the interest rate, the lower the present value and the higher the future value.

Option B is correct.

Option C is not correct because they both vary directly. assuming all variables ( discount rate and number of periods) are constant.

Option D is not correct because the more time that passes, the higher the FV will be if the PV is constant, and vice versa.

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