If Interest Rates Rise, the Present Value of Any Future

question 14

Multiple Choice

If interest rates rise, the present value of any future earnings is bound to:

• A)Fall
• B)Rise
• C)Suffer from inflation
• D)Increase in risk

---

Definitions:

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period of time, used in capital budgeting to analyze the profitability of an investment.

Profitability Index

A financial tool used to evaluate the desirability of an investment, calculated as the present value of future cash flows divided by the initial investment.

Net Cash Flow

The variance between the cash coming into and going out of a business within a given timeframe.

Discount Rate

The interest rate used to discount future cash flows to their present value, enabling comparison of the value of investments made at different times.