You are scheduled to receive $10,000 in one year. What will be the effect of an increase in the interest rate on the present value of this cash flow

The present value of this cash flow will be decreased following the increase in the interest rate.

Explanation:

We have the formula for calculating present value is:

PV = FV / (1+r) ^n

where:

PV is the present value

FV is the future value which is $10,000 in the described question

r is the discount rate which is the interest rate

n is the number of discounting periods which is one year in the described question

So, once the interest rate increase, the denominator - (1+r) ^n - will increase. Then, if FV remains constant, PV will decrease.

So, The present value of this cash flow will be decreased following the increase in the interest rate.