Deck 5: Interest Rates

Question 1

Which of the following statements is FALSE?

A) The effective annual rate indicates the amount of interest that will be earned at the end of one year.
B) The annual percentage rate indicates the amount of simple interest earned in one year.
C) The annual percentage rate indicates the amount of interest including the effect of compounding.
D) Because interest rates may be quoted for different time intervals, it is often necessary to adjust the interest rate to a time period that matches that of our cash flows.

Answer 1

The annual percentage rate indicates the amount of interest including the effect of compounding.

Question 2

Which of the following formulas gives you the growth in purchasing power?

A) (1 + real rate) / (1 + nominal rate)
B) growth of money / growth of prices
C) growth of money + growth of prices
D) (1 + inflation rate) / (1 + nominal rate)

Answer 2

growth of money / growth of prices

Question 3

What is the effective annual rate (EAR)?

A) the interest rate that would earn the same interest with annual compounding
B) the discount rate for an n-year time interval, where n may be more than one year or less than or equal to one year (a fraction)
C) the ratio of the number of the annual percentage rate to the number of compounding periods per year
D) the cash flows from an investment over a one-year period divided by the number of times that interest is compounded during the year

Answer 3

the interest rate that would earn the same interest with annual compounding

Question 4

$\begin{array}{lcccc}\text { Term in years: } & \mathbf{2} & \mathbf{5} & \mathbf{1 0} & \mathbf{3 0} \\\hline \text { Rate: } & 2.25 \% & 3.125 \% & 3.5 \% & 4.375 \%\end{array}$ The table above shows the interest rates available from investing in risk-free Government securities with different investment terms. If an investment offers a risk-free cash flow of $100,000 in ten years' time, what is the present value (PV) of that cash flow?

A) $80,051
B) $70,892
C) $73,512
D) $78,320

Question 5

Drew receives an inheritance that pays him $50,000 every three months for the next two years. Which of the following is closest to the present value (PV) of this inheritance if the interest rate is 8.5% (EAR)?

A) $364,309
B) $365,322
C) $400,000
D) $354,223

Question 6

Inflation is calculated as the rate of change in th?

A) Consumer Price Index.
B) Gross Domestic Product.
C) Risk-free rate.
D) Unemployment rate.

Question 7

Five years ago you took out a 30-year mortgage with an APR of 6.5% for $200,000. If you were torefinance the mortgage today for 20 years at an APR of 4.25%, how much would you save in total interest expense?

A) $176,846
B) $151,696
C) $100,998
D) $75,848

Question 8

A small foundry agrees to pay $250,000 two years from now to a supplier for a given amount ofcoking coal. The foundry plans to deposit a fixed amount in a bank account every three months, starting three months from now, so that at the end of two years the account holds $250,000. If the account pays 5.5% APR compounded monthly, how much must be deposited every three months?

A) $29,777
B) $29,770
C) $29,740
D) $31,250

Question 9

The effective annual rate (EAR) for a loan with a stated APR of 10% compounded quarterly is closest to:

A) 10.38%
B) 10.25%
C) 10.52%
D) 10.00%

Question 10

You are considering purchasing a new truck that will cost you $34,000. The dealer offers you 1.9? APR financing for 48 months (with payments made at the end of the month). Assuming you finance the entire $34,000 and finance through the dealer, your monthly payments will be closest to:

A) $1086
B) $594
C) $708
D) $736

Question 11

If over the course of a year the inflation rate was about 3.24%, and short-term government bonds offered a rate of 2.9%, which of the following statement is correct?

A) The real interest rate for investors in these bonds was greater than the rate of inflation.
B) Investors in these bonds were able to buy less at the end of the year than they could have purchased at the start of the year.
C) The nominal interest rate offered by these bonds gave the true increase in purchasing power that resulted from investing in these bonds.
D) The purchasing power of investors in these bonds grew over the course of the year.

Question 12

Which of the following reasons for considering long-term loans inherently more risky thanshort-term loans is most accurate?

A) There is a greater chance that a borrower will default in a longer time frame.
B) The loan values are very sensitive to changes in market interest rates.
C) The penalties for closing out a long-term loan early make them unattractive to many investors.
D) Long-term loans typically have ongoing costs that accumulate over the life of the loan.

Question 13

$$\begin{array} { | l | c | c | c | c | } \hline \text { Investment: } & \mathrm { A } & \mathrm { B } & \mathrm { C } & \mathrm { D } \\\hline \text { Rate of Return: } & 5.7 \% & 5.6 \% & 5.5 \% & 5.5 \% \\\hline \text { Compounding } & \text { Yearly } & \text { Semiannually } & \text { Monthly } & \text { Weekly } \\\hline\end{array}$$
The table above shows the rate of return (APR) for four investment alternatives. Which offers the
highest EAR?

A) Investment A
B) Investment B
C) Investment C
D) Investment D

Question 14

A bank pays interest quarterly with an EAR of 8%. What is the periodic interest rate applicable per quarter?

A) 2.00%
B) 1.80%
C) 1.46%
D) 1.94%

Question 15

When computing a present value, which of the following is TRUE?

A) You should adjust the discount rate to match the time period of the cash flows.
B) You should adjust the time period to match the present value.
C) You should adjust the future value to match the present value.
D) You should adjust the cash flows to match the time period of the discount rate.

Question 16

What is the real interest rate given a nominal rate of 8% and an inflation rate of 4.5%?

A) 8.0%
B) 3.3%
C) 4.9%
D) 4.5%

Question 17

Five years ago you took out a 30-year mortgage with an APR of 6.5% for $200,000. If you were torefinance the mortgage today for 20 years at an APR of 4.25%, how much would your monthly payment change by?

A) The monthly payment will decrease by $104.79
B) The monthly payment will increase by $343.12.
C) The monthly payment will decrease by $343.12.
D) The monthly payment will increase by $104.79.

Question 18

The effective annual rate (EAR) for a loan with a stated APR of 8% compounded monthly is closestto:

A) 8.24%
B) 8.33%
C) 8.30%
D) 8.00%

Question 19

Which of the following is/are TRUE? I. The EAR can never exceed the APR. II. The APR can never exceed the EAR. III. The APR and EAR can never be equal.

A) Only II & III are true.
B) Only II is true.
C) Only I is true.
D) Only I & III are true.

Question 20

A bank offers a loan that will require you to pay 6% interest compounded monthly. Which of the following is closest to the EAR charged by the bank?

A) 6.17%
B) 72.00%
C) 6.00%
D) 5.84%

Question 21

A bank lends some money to a business. The business will pay the bank a single payment of $180,000 in ten years' time. How much greater is the present value (PV) of this payment if the interest rate is 9% rather than 8%?

A) $35,892
B) $83,374
C) $7341
D) $76,033

Question 22

Which of the following accounts has the highest EAR?

A) one that pays 6.1% every six months
B) one that pays 3% every three months
C) one that pays 1.0% per month
D) one that pays 12.6% per year

Question 23

You are considering purchasing a new car that will cost you $28,000. The dealer offers you 4.9% APR financing for 60 months (with payments made at the end of the month). Assuming you finance the entire $28,000 and finance through the dealer, your monthly payments will be closest to:

A) $527
B) $478
C) $467
D) $1454

Question 24

Use the table for the question(s) below.
Suppose the term structure of interest rates is shown below:
$\begin{array} { l c c c c c c } \hline \text { Term } & \text { 1 year } & \text { 2 years } & \text { 3 years } & \text { 5 years } & \text { 10 years } & \text { 20 years } \\\hline \text { Rate } & & & & & & \\( \text { EAR\%) } & 5.00 \% & 4.80 \% & 4.60 \% & 4.50 \% & 4.25 \% & 4.15 \% \\\hline\end{array}$

-The present value (PV) of receiving $1000 per year with certainty at the end of the next three years is closest to:

A) $2723
B) $2733
C) $2744
D) $2737

Question 25

A homeowner has five years of monthly payments of $1400 before she has paid off her house. If the interest rate is 7% APR, what is the remaining balance on her loan?

A) $59,890
B) $70,703
C) $84,000
D) $64,918

Question 26

Use the information for the question(s) below.
You are purchasing a new home and need to borrow $250,000 from a mortgage lender. The mortgage lender quotes you a
rate of 6.25% APR for a 30-year fixed rate mortgage. The mortgage lender also tells you that if you are willing to pay two
points, they can offer you a lower rate of 6.0% APR for a 30-year fixed rate mortgage. One point is equal to 1% of the loan
value. So if you take the lower rate and pay the points, you will need to borrow an additional $5000 to cover points you are
paying the lender.
Assuming you pay the points and borrow from the mortgage lender at 6.00%, then your monthly mortgage payment (with payments made at the end of the month) will be closest to:

A) $1570
B) $1500
C) $1530
D) $1540

Question 27

Use the table for the question(s) below.
Consider the following investment alternatives:
$\begin{array} { l c c } \hline \text { Investment } & \text { Rate } & \text { Compounding } \\\hline \text { A } & 6.25 \% & \text { Annual } \\\hline \text { B } & 6.10 \% & \text { Daily } \\\hline \mathrm { C } & 6.125 & \text { Quarterly } \\\hline \mathrm { D } & 6.120 & \text { Monthly } \\\hline\end{array}$

-Which alternative offers you the highest effective rate of return?

A) Investment A
B) Investment B
C) Investment C
D) Investment D

Question 28

An investor buys a property for $640,000 with a 25-year mortgage and monthly payments at 8% APR. After 18 months the investor resells the property for $712,000. How much cash will the investor have made from the sale, once the mortgage is paid off?

A) $92,644
B) $84,825
C) $72,412
D) $63,218

Question 29

Which of the following best describes the annual percentage rate?

A) the discount rate when it is divided by the number of of times it is compounded in a year
B) the discount rate when compounded more than once a year or less than once a year
C) the quoted interest rate which considered with the compounding period gives the effective interest rate
D) the effective annual rate after compounding is taken into account

Question 30

Michael has credit card debt of $60,000 that has an 18% APR, compounded monthly. The minimum monthly payment only requires him to pay the interest on his debt. He receives an offer for a credit card with an APR of 10% compounded monthly. If he rolls over his debt onto this card and makes the same monthly payment as before, how long will it take him to pay off his credit card debt?

A) 84 months
B) 98 months
C) 72 months
D) 78 months

Question 31

Howard is saving for a long holiday. He deposits a fixed amount every month in a bank account with an EAR of 7.5%. If this account pays interest every month then how much should he save from each monthly wage in order to have $10,000 in the account in two years' time?

A) $388
B) $161
C) $166
D) $4818

Question 32

A truck costing $112,000 is paid off in monthly installments over four years with 8% APR. After three years the owner wishes to sell the truck. What is the closest amount from the following list that he needs to pay on his loan before he can sell the truck?

A) $87,255
B) $31,432
C) $24,867
D) $28,678

Question 33

Use the table for the question(s) below.
Suppose the term structure of interest rates is shown below:
$\begin{array} { l c c c c c c } \hline \text { Term } & \text { 1 year } & \text { 2 years } & \text { 3 years } & \text { 5 years } & \text { 10 years } & \text { 20 years } \\\hline \text { Rate } & & & & & & \\( \text { EAR\%) } & 5.00 \% & 4.80 \% & 4.60 \% & 4.50 \% & 4.25 \% & 4.15 \% \\\hline\end{array}$

-A 12% APR with bi-monthly compounding is equivalent to an EAR of

A) 12.50%.
B) 12.00%.
C) 11.98%.
D) 12.62%.

Question 34

Use the table for the question(s) below.
Suppose the term structure of interest rates is shown below:
$\begin{array} { l c c c c c c } \hline \text { Term } & \text { 1 year } & \text { 2 years } & \text { 3 years } & \text { 5 years } & \text { 10 years } & \text { 20 years } \\\hline \text { Rate } & & & & & & \\( \text { EAR\%) } & 5.00 \% & 4.80 \% & 4.60 \% & 4.50 \% & 4.25 \% & 4.15 \% \\\hline\end{array}$

-Consider an investment that pays $1000 at the end of each of the next four years. If the investment costs $3,500 and has a net present value (NPV) of $74.26, then the four-year risk-free interest rate is closest to:

A) 4.55%
B) 4.58%
C) 4.5%
D) 4.53%

Question 35

A 10% APR with quarterly compounding is equivalent to an EAR o?

A) 9.81%.
B) 10.38%.
C) 10.47%
D) 10.00%.

Question 36

A $40,000 new car loan is taken out with the terms 9% APR for 48 months. How much are monthly payments on this loan?

A) $769.79
B) $995.40
C) $1002.56
D) $833.33

Question 37

A bank offers an account with an APR of 6% and an EAR of 6.09%. How does the bank compound interest for this account?

A) semiannual compounding
B) annual compounding
C) monthly compounding
D) weekly compounding

Question 38

Use the table for the question(s) below.
Suppose the term structure of interest rates is shown below:
$\begin{array} { l c c c c c c } \hline \text { Term } & \text { 1 year } & \text { 2 years } & \text { 3 years } & \text { 5 years } & \text { 10 years } & \text { 20 years } \\\hline \text { Rate } & & & & & & \\( \text { EAR\%) } & 5.00 \% & 4.80 \% & 4.60 \% & 4.50 \% & 4.25 \% & 4.15 \% \\\hline\end{array}$

-The effective annual rate (EAR) for a savings account with a stated APR of 4% compounded daily is closest to:

A) 4.10%
B) 4.08%
C) 4.06%
D) 4.00%

Question 39

Assume your current mortgage payment is $900 per month. If you begin to pay $1,000 per month (with the extra $100 per month going to principal), which of the following will be TRUE?

A) The total paid (principal and interest) will increase with $1,000 monthly payment compared to $900 monthly payments.
B) The total principal paid will decrease with $1,000 monthly payment compared to $900 monthly payments.
C) The mortgage balance will decrease faster with $1,000 monthly payment compared to $900 monthly payments.
D) The total interest expense will increase with $1,000 monthly payment compared to $900 monthly payments.

Question 40

$$\begin{array}{l}\begin{array} { l l l l l l } \text { Term in years: } & 1 & 2 & 3 & 4 & 5\\\hline\text { Rate: } & 1.8 \% & 2.25 \% & 2.30 \% & 2.66 \% & 3.13 \%\end{array}\end{array}$$ The table above shows the interest rates available from investing in risk-free Government securities with different investment terms. What is the present value (PV) of cash flows from an investment that yields $4000 at the end of each year for the next four years?

A) $14,956
B) $14,990
C) $15,093
D) $14,898

Question 41

Use the table for the question(s) below.
Consider the following investment alternatives:
$\begin{array} { l c c } \hline \text { Investment } & \text { Rate } & \text { Compounding } \\\hline \text { A } & 6.25 \% & \text { Annual } \\\hline \mathrm { B } & 6.10 \% & \text { Daily } \\\hline \mathrm { C } & 6.125 & \text { Quarterly } \\\hline \mathrm { D } & 6.120 & \text { Monthly } \\\hline\end{array}$

-Which alternative offers you the lowest effective rate of return?

A) Investment A
B) Investment B
C) Investment C
D) Investment D

Question 42

A small business refits its store. The builders charge them $125,000, which will be paid back in monthly installments over three years at 6% APR. The builders will reduce this rate to 5.5% APR if they pay $2500 up front. By approximately how much will this reduce the monthly loan repayments ?

A) $104
B) $214
C) $77
D) $28

Question 43

Ursula wants to buy an $18,999 used car. She has savings of $2,000 plus an $800 trade-in. She wants her monthly payments to be about $272. Which of the following loans offers monthly payments closest to $270?

A) 6.5% APR for 36 months
B) 6.5% APR for 72 months
C) 6.5% APR for 60 months
D) 6.5% APR for 48 months

Question 44

Use the table for the question(s) below.
Suppose the term structure of interest rates is shown below:
$\begin{array} { l c c c c c c } \hline \text { Term } & \text { 1 year } & \text { 2 years } & \text { 3 years } & \text { 5 years } & \text { 10 years } & \text { 20 years } \\\hline \text { Rate } & & & & & & \\( \text { EAR\%) } & 5.00 \% & 4.80 \% & 4.60 \% & 4.50 \% & 4.25 \% & 4.15 \% \\\hline\end{array}$

-What is the shape of the yield curve and what expectations are investors likely to have about future interest rates?

A) inverted; lower
B) normal; higher
C) inverted; higher
D) normal; lower

Question 45

Why, in general, do investment opportunities offer a rate greater than that offered by Australian government securities for the same horizon?

A) Most investment opportunities offer far greater risk than those offered by Australian government securities.
B) The return from Australian government securities generally attracts less tax than the returns from other investments.
C) Australian government securities are generally considered to be the best alternative to most investments.
D) The opportunity cost of capital for a given horizon is generally based on Australian government securities with that same horizon.

Question 46

Elinore is asked to invest $5000 in a friend's business with the promise that the friend will repay $5500 in one year's time. Elinore finds her best alternative to this investment, with similar risk, is one that will pay her $5400 in one year's time. Government securities of similar term offer a rate of return of 6%. What is the opportunity cost of capital in this case?

A) 10%
B) 8%
C) 6%
D) 9%

Question 47

Joseph buys a Jeep for $60,000, financing it with a five-year 6.5% APR loan paid monthly. He decides to pay an extra $50 per month in addition to his monthly payments. Approximately how long will he take to pay off the loan under these conditions?

A) 4 years 4 months
B) 4 years 9 months
C) 4 years 6 months
D) 4 years 10 months

Question 48

A graphic designer needs a laptop for audio/video editing, and notices that they can elect to pay $2900 for a Dell XPS laptop, or lease from the manufacturer for monthly payments of $79 each for four years. The designer can borrow at an interest rate of 7% APR compounded monthly. What is the cost of leasing the laptop over buying it outright?

A) Leasing costs $399 more than buying.
B) Leasing costs $892 more than buying.
C) Leasing costs $384 more than buying.
D) Leasing costs $311 more than buying.

Question 49

Which of the following would be LEAST likely to lower the interest rate that a bank offers a borrower?

A) The borrower is judged to have a low degree of risk.
B) The expected inflation rate is expected to be low.
C) The investment will be for a long period of time.
D) The number of borrowers seeking funds is low.

Question 50

The yield curve is typicall?

A) inverted.
B) flat.
C) downward sloping.
D) upward sloping.

Question 51

In which of the following situations would a reserve bank be most likely to lower interest rates?

A) The economy is growing slowly or not at all.
B) The rate of savings is extremely high.
C) The level of investment is very low.
D) Inflation is rising rapidly.

Question 52

An 8% APR with monthly compounding is closest to which of the following?

A) an EAR of 6.7%
B) an EAR of 8.3%
C) an EAR of 8.5%
D) an EAR of 7.72%

Question 53

A home buyer buys a house for $225,000. She pays 20% cash, and takes a fixed-rate mortgage for ten years at 6.26% APR. If she makes payments at the end of every two weeks, which of the following is closest to each of her payments?

A) $1165.07
B) $937.50
C) $915.08
D) $932.05

Question 54

In which of the following situations would it NOT be appropriate to use the following formula: PV = C0 + C1/(1 + r) + C2/(1 + r)2 + . . . . + Cn/(1 + r)n when determining the present value (PV) of a cash flow stream?

A) when short-term and long-term interest rates vary widely
B) when the inflation rate is high
C) when yield curves are flat
D) when the discount rate is high

Question 55

A Xerox DocuColor photocopier costing $42,000 is paid off in 60 monthly installments at 6.5% APR. After three years the company wishes to sell the photocopier. What is the minimum price for which they can sell the copier so that they can cover the cost of the balance remaining on the loan?

A) $26,813
B) $19,842
C) $18,448
D) $19,645

Question 56

A pottery factory purchases a continuous belt conveyor kiln for $50,000. A 6.5% APR loan with monthly payments is taken out to purchase the kiln. If the monthly payments are $501, over what term is this loan being paid?

A) 11 years
B) 12 years
C) 13 years
D) 10 years

Question 57

If the current inflation rate is 4% and you have an investment opportunity that pays 10%, then the real rate of interest on your investment is closest to:

A) 6.0%
B) 10.0%
C) 5.8%
D) 14.0%

Question 58

Use the table for the question(s) below.
Suppose the term structure of interest rates is shown below:
$\begin{array} { l c c c c c c } \hline \text { Term } & \text { 1 year } & \text { 2 years } & \text { 3 years } & \text { 5 years } & \text { 10 years } & \text { 20 years } \\\hline \text { Rate } & & & & & & \\\text { (EAR\%) } & 5.00 \% & 4.80 \% & 4.60 \% & 4.50 \% & 4.25 \% & 4.15 \% \\\hline\end{array}$

-The net present value (NPV) of an investment that costs $2700 and pays $1000 at the end of one, three, and five years is closest to:

A) -$71.38
B) $21.47
C) -$100.26
D) $1665.62

Question 59

Which of the following statements is FALSE?

A) The opportunity cost of capital is the return the investor forgoes when the investor takes on a new investment.
B) The investor's opportunity cost of capital is the best available expected return offered in the market on an investment of comparable risk and term of the cash flows being discounted.
C) Interest rates we observe in the market will vary based on quoting conventions, the term of investment, and risk.
D) For a risk-free project, the opportunity cost of capital will typically be greater than the interest rate on Australian government securities with a similar term.

Question 60

In an effort to maintain price stability, it is expected that the European Central Bank will raise interest rates in the future. Which of the following is the most likely effect of such an action on short- and long-term interest rates in Europe?

A) Long-term interest rates will be about the same as short-term interest rates.
B) Long-term interest rates will tend to be higher than short-term interest rates.
C) Both long- and short-term interest rates would be expected to fall sharply.
D) No relative change in short- and long-term interest rates could be predicted.

Question 61

Is it possible to analyse cash flows that occur in time intervals that are not exactly equal to a year?

Question 62

If interest rates are 4.5% and inflation is 2.8%, what is the real interest rate?

A) 1.65%
B) 1.58%
C) 1.62%
D) 1.61%

Question 63

Joe borrows $100,000 and agrees to repay the principal, plus 7% APR interest compounded monthly, at the end of three years. Joe has taken out an amortising loan.

Question 64

How do we handle a situation when both compounding period and cash flow interval are given to us but both are less than a year and not equal to each other?

Question 65

If the current inflation rate is 5%, then the nominal rate necessary for you to earn an 8% real interest rate on your investment is closest to:

A) 4.9%
B) 3.0%
C) 13.0%
D) 13.4%

Question 66

What is the general relationship between the absolute values of APR and EAR for an investment?

Question 67

When there are large numbers of people looking to save their money and there is little demand for loans, one would expect interest rates to be high.

Question 68

A homeowner has $200,000 home with a 20-year mortgage, paid monthly at 7.25% APR. After five years he receives $50,000 as an inheritance. If he pays this $50,000 toward his mortgage along with his regular payment, by approximately how many years will it reduce the amount of time it takes him to pay off his mortgage?

A) 5 years
B) 3 years
C) 4 years
D) 6 years

Question 69

What care, if any, should be taken when cash flows occur in periodicities that are shorter than a year - e.g., quarterly or monthly cash flows?

Question 70

A $60,000 loan is taken out on a boat with the terms 7% APR for 36 months. How much are the monthly payments on this loan?

A) $1783.33
B) $1666.66
C) $1796.54
D) $1852.62

Question 71

Which of the following statements is FALSE?

A) Fundamentally, interest rates are determined by the RBA.
B) The interest rates that are quoted by banks and other financial institutions are nominal interest rates.
C) The RBA determines very short-term interest rates through its influence on the cash rate.
D) The interest rates that banks offer on investments or charge on loans depends on the horizon of the investment or loan.

Question 72

Which of the following statements is FALSE?

A) The equivalent after-tax interest rate is r(1 - r).
B) It is important to use a discount rate that matches both the horizon and the risk of the cash flows.
C) The highest interest rate, for a given horizon, is the rate paid on Australian government securities.
D) The actual return kept by an investor will depend on how the interest is taxed.

Question 73

How do we decide on opportunity cost when we have several opportunities that need to be foregone?

Question 74

Coby buys 10 Tufflift 4-post, 4.5-tonne car hoists for his carpark at a total cost of $410,000. He finances this with a five-year loan at 6.2% APR with monthly payments. After he has made the first 20 payments, how much is the outstanding principal balance on his loan?

A) $250,698
B) $150,969
C) $287,153
D) $302,284

Question 75

When you borrow money, the interest rate on the borrowed money is the price you pay to be able to convert your future loan payments into money today.

Question 76

Everything else remaining the same, under what situation will APR and EAR be equal?

Question 77

The term "opportunity" in opportunity cost of capital comes from the fact that any worthwhile opportunity for investment will have a cost: the risk to the capital invested.

Question 78

The opportunity cost of capital will generally be higher than the interest rate offered by Australian government securities with the same term, for a risk-free investment.

Question 79

The annual percentage rate indicates the amount of interest, including the effect of any compounding.

Question 80

When the costs of an investment come before that investment's benefits, what will be the effect of a rise in interest rates on the attractiveness of that investment to potential investors?

A) It will make it more attractive, since it will increase the investment's net present value (NPV).
B) It will make it less attractive, since it will increase the investment's net present value (NPV).
C) It will make it more attractive, since it will decrease the investment's net present value (NPV).
D) It will make it less attractive, since it will decrease the investment's net present value (NPV).