(2a) How would an increase in the interest rate (i) affect the future value of a...
(2a) How would an increase in the interest rate (i) affect the future value of a sum of money? (2b) How would an increase in the interest rate (i) affect the present value of a sum of money? Explain why this would happen.
Homework Answers
(2a) (I) Increase in interest rates will compound the future value to a Higher sum of money as the more interest rate is paid , the more the future value will grow , due to the compounding concept as you can figure out in bank deposits. A bank deposit will grow higher with Higher interest..
(2b) (1) The increase in interest rate will diminish the present value of money, this is because as we apply the higher interest, the future sum of money get discounted with Higher interest so This is because of the principles of Discounting that higher rate of interest will diminish the present value of a sum of money.
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