What can be said about the present value of a financial instrument with lower interest rates?

The present value of a financial instrument is inversely related to interest rates. When interest rates are lower, the discount rate applied to future cash flows decreases, resulting in a higher present value. This is because the future cash flows are being discounted less heavily.

For instance, if you have a stream of future payments, the lower the interest rate, the less present value is subtracted from these future payments. With a lower discount rate, each payment remains more significant in today's terms, thus raising the overall present value of the instrument.

Understanding this relationship is crucial, as it helps investors determine the attractiveness of various financial instruments under different interest rate environments.