Final answer:
The answer to whether a rise in interest rates would decrease the future value of a savings account deposit is false. A higher interest rate would increase the future value of the investment as the money in the account will accrue more interest over time, contrary to the effect on the present value of future fixed payments from bonds when discounted at a higher rate.
Step-by-step explanation:
The question posed is whether a rise in the interest rate would decrease the future value of an investment, assuming a deposit of $700 is made today into a savings account with a variable interest rate and the collection of payment will occur in one year. The answer to this scenario is false. If the interest rate rises, the future value of your investment would increase, not decrease, because interest is the amount earned on the principal. In the context provided, an interest rate hike from 8% to 11% would not change the actual future dollar payments but would indeed reduce the present value if you were selling a bond. However, we are discussing a deposit into a savings account, not a bond, so the scenario does not directly apply to the deposit.
In simple terms, when the interest rate increases, the money in the savings account will accumulate more interest, meaning that you'll have more money in the future than if the interest rate had stayed the same. This holds true unless there are special conditions tied to the account that would somehow penalize the account holder for rate increases, which is generally not the case with standard savings accounts.
The concept of the present value of future payments becoming lower due to a higher interest rate used for discounting does not directly apply to a simple interest-earning savings account. This concept typically applies to bonds or loans, where the future payments are fixed and the value of those payments is assessed in the present, considering the higher prevailing interest rates and the associated opportunity costs.