How are Future Values Affected by Changes in Interest Rates?


Question: How are future values affected by changes in interest rates?

An interest rate is the percentage of the principal amount, charged by the lender or bank to the borrower for the use of its assets or money for a specific time period.

Answer: If the interest rate is high, then the future value would be large and vice-versa

Let's look into the relationship between interest rates and future values

Explanation:

The interest rate is given by,

Intrest rate = (Simple Interest × 100)/ (Principle × Time)

Simple interest and interest rates have a direct relationship as seen from the above formula,

i.e, with the increse in interest rate, the simple interest also increases

Hence, if simple interest increases , the future values will automatically increase

This means that there is a direct relationship between interest rate and future values also

i.e, with the increase in the interest rate, future values also increases

Thus, if the interest rate is high, then the future value would be large and vice-versa