As the interest rate rises, the present worth of an investment decreases. Here's why:

1. The present worth or present value of an investment is calculated by discounting the future cash flows that the investment will generate. The formula for present value is PV = FV / (1 + r)^n, where FV is the future value, r is the interest rate, and n is the number of periods.

2. When the interest rate (r) increases, the denominator of the formula becomes larger. This means that the overall value of the fraction (and therefore the present value) becomes smaller.

3. Therefore, an increase in the interest rate leads to a decrease in the present value of an investment. This is because the higher the interest rate, the less a future cash flow is worth in today's dollars.

4. In other words, a higher interest rate decreases the attractiveness of future cash flows, which in turn decreases the present value of the investment.

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As the interest rate rises, the present worth of an investment decreases. Here's why:

1. The present worth or present value of an investment is calculated by discounting the future cash flows that the investment will generate. The formula for present value is PV = FV / (1 + r)^n, where FV is the future value, r is the interest rate, and n is the number of periods.

2. When the interest rate (r) increases, the denominator of the formula becomes larger. This means that the overall value of the fraction (and therefore the present value) becomes smaller.

3. Therefore, an increase in the interest rate leads to a decrease in the present value of an investment. This is because the higher the interest rate, the less a future cash flow is worth in today's dollars.

4. In other words, a higher interest rate decreases the attractiveness of future cash flows, which in turn decreases the present value of the investment.

Knowee AI · Accepted Answer

As the interest rate rises, the present worth of an investment decreases. Here's why:

1. The present worth or present value of an investment is calculated by discounting the future cash flows that the investment will generate. The formula for present value is PV = FV / (1 + r)^n, where FV is the future value, r is the interest rate, and n is the number of periods.

2. When the interest rate (r) increases, the denominator of the formula becomes larger. This means that the overall value of the fraction (and therefore the present value) becomes smaller.

3. Therefore, an increase in the interest rate leads to a decrease in the present value of an investment. This is because the higher the interest rate, the less a future cash flow is worth in today's dollars.

4. In other words, a higher interest rate decreases the attractiveness of future cash flows, which in turn decreases the present value of the investment.

As the interest rate rises the present worth of an investment:

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