Final answer:
The present value of a future cash flow is larger the shorter the time period you are discounting it over. A higher interest rate will lower future cash flows' present value, as demonstrated with bonds, making the investment's value fall if interest rates rise.
Step-by-step explanation:
When considering the factors that affect present value, one of the statements posits a direct relationship between present value and the variables of future value, interest rate, and time period. Other factors constant, the present value will be larger the shorter is the time period t you are discounting over. This is because present value is determined by discounting future cash flows back to their value today, a process influenced by the time value of money.
The present value calculations determine what a certain amount in the future is worth now, given a specific interest rate. If you are discounting future cash flows at a 15% interest rate, for example, the longer the amount of time before the cash flow is received, the lower its present value will be due to the effect of compounding interest over time.
In the case where the interest rate rises from 8% to 11%, the present value of fixed future cash flows will be lower, because a higher discount rate reduces the present value of future cash flows. This is particularly illustrative in the case of bonds, where the present value calculation helps investors understand why bonds' market value fluctuates with changes in interest rates.