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    Effect on present value

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    Using the Discounted-Cash-Flow formula, what effect will increase the required rate of return on the Present Value?

    I think the PV will increase, but I'm confused with the formula.
    Can you help please?

    Using the Discounted-Cash-Flow formula, what effect will increase the required rate of return on the Present Value?
    a. It will decrease the PV
    b. It will increase the PV
    c. It will have no effect on the PV
    d. It will have an indeterminate effect on the PV

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    Solution Preview

    a. It will decrease the PV.

    The PV is calculated as
    PV = FV/(1+rate)^n
    If we increase the ...

    Solution Summary

    The solution explains the effect on present value of an increase in required rate of return

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