Question

With respect to the effect of changes in the stated interest rate and holding periods on future​ sums, which of the following statements is​ correct? ​(Select the best choice​ below.)

A. An increase in the stated interest rate will decrease the future value of a given sum. ​ Likewise, an increase in the length of the holding period will decrease the future value of a given sum.
B. An increase in the stated interest rate will increase the future value of a given sum. ​ Likewise, an increase in the length of the holding period will increase the future value of a given sum.
C. An increase in the stated interest rate will increase the future value of a given sum. ​ Whereas, an increase in the length of the holding period will decrease the future value of a given sum.
D. An increase in the stated interest rate will decrease the future value of a given sum. ​ Whereas, an increase in the length of the holding period will increase the future value of a given sum.

Answer 1

B. An increase in the stated interest rate will increase the future value of a given sum. ​ Likewise, an increase in the length of the holding period will increase the future value of a given sum.

Step-by-step explanation:

When the discount rate of a present amount of cash increases it will also result in increase in the future values you would have received. Take for example an investment of $1000 with interest of 25% gives $250 at year end. If Interest is increased to 50% it will give double of the future value (that is $500 at year end).

When the number of periods or time of an investment increases, the future value also increases. For example a $1,000 investment that is expected to give $200 in 3 years, will give $400 if investment time is increased to 6 years.