Suppose you deposit $200 today into a bank account with a variable interest rate and will receive a payment in one year. true or false: if during the year the interest rate rises, this increases the future value of your investment.
a. true
b. false

a.True

Explanation:

the increase in interest rate will decrease the future value of the investment.

false

Explanation:

Because the investment does not change, a change in interest rate affects the future value of the payment.

The formula for future value, Future Value=(Present Value)×(1+r), implies that when the interest rate r decreases, future value decreases.

For the intuition behind this, consider the following example. If today you deposit $200 into a savings account earning 1% per year, then one year from now you will have $202. However, if the interest rate changes to 2% per year, then one year from now you will have $204. Thus, at higher interest rates, the future value of a present payment is higher.

answerreactive approach;