After the interest rate is raised, the present value of this cash flow will fall.
The method we use to determine present value is as follows:
PV = FV / (1 + r)n, where
the current value, or PV
FV stands for future value, which in the aforementioned query is $10,000 cash flow.
The interest rate is represented by r, the discount rate.
In the aforementioned question, n is the number of discounting periods, which is one year.
Therefore, the denominator (1+r)n will increase if the interest rate increases. Then, PV will fall if FV stays constant.
So, After the interest rate is raised, the present value of this cash flow will fall.
Learn more about cash flow hear :
https://brainly.com/question/14550247
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