Question 7 (1 point) d When interest rates rise, what needs to happen in order f

Question

Question 7 (1 point) d When interest rates rise, what needs to happen in order for the present value of an asset to remain the same, using a rate of return approach? a) The amount of the income stream needs to fall and/or cost of capital needs to rise. b) The amount of the income stream needs to fall and/or cost of capital needs to fall. c) The amount of the income stream needs to rise and/or cost of capital needs to fall. d) The amount of the income stream needs to rise and/or cost of capital needs to rise. Save

Explanation / Answer

when rate of interest rises, it means now future streams of income would be discounted at higher rate which would drag down present value. For keeping present value same, there must be rise in the amount of stream of income. or there must be fall in cost of capital.

Right answer is : (C

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