In: Finance
For lump sum payment, an increase of interest rate increases FV and decreases PV.
True or false?
Future value = Present value * (1 + Rate of interest)^N
As per the above equation, the future value is directly related to the interest rate and hence an increase in interest rate would increase the future value
Present value = Future value / (1 + Rate of interest)^N
As per the above equation, the present value is inversely related to the interest rate and hence an increase in interest rate would decrease the present value
Thus the stateement is TRUE