How Are Future Values Affected by Changes in Interest Rates

question 66

Multiple Choice

How are future values affected by changes in interest rates?

• A) The lower the interest rate, the larger the future value will be.
• B) The higher the interest rate, the larger the future value will be.
• C) Future values are not affected by changes in interest rates.
• D) One would need to know the present value in order to determine the impact.

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Definitions:

Marginal Tax Rate

The rate at which the next dollar of taxable income is taxed, indicating the impact of each additional dollar of income on taxes owed.

Additional Income

Extra earnings obtained beyond the regular sources of income or revenue.

Proportional Tax

A tax whose burden is the same proportion of income for all households.

Regressive Tax

A tax whose burden, expressed as a percentage of income, falls as income increases.