Present values ____________ and future values __________ as the interest or discount rate _________.

A. Rise, fall, rises
B. Rise, rise, rises
C. Fall, fall, falls
D. Fall, rise, fall
E. Fall, rise, rises

As with the other question you posted today - this can be resolved by considering the equation for PV as a function of FV and I, and the equation for FV as a function of PV and I. Tell us what you think the answer is and why, and we'll check it for you.

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Originally Posted by tclough

Present values ____________ and future values __________ as the interest or discount rate _________.

A. Rise, fall, rises
B. Rise, rise, rises
C. Fall, fall, falls
D. Fall, rise, fall
E. Fall, rise, rises

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If it is normally seen, the answer would be Rises, Rises, Falls or Falls, Falls, Rises. None of them are listed here.

Key to remember: Present Value and Future Value are positively correlated, both having negative correlation with discount rate.

I guess you were just playing around!!!

Quote:

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Originally Posted by arunavcd

If it is normally seen, the answer would be Rises, Rises, Falls or Falls, Falls, Rises. None of them are listed here.

Key to remember: Present Value and Future Value are positively correlated, both having negative correlation with discount rate.

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Give that one a bit more thought. True that they're positively correlated, holding the rate constant. But as to the effect that a rate change has on each, consider...

For any given present amount, what effect does an investment rate increase have on the expected future value? And,

For any given future amount, what effect does an investment rate increase have on the required present amount associated with such future amount?

Or equivalently, and .

What effect does an increase in r have on F in the first expression, and on P in the latter?