I’m trying to understand this statement:
The upper limit (of debt) is equal to the undiscounted sum of the principal and remaining interest payments (i.e. the PV of these contractual payments at a zero percent discount rate)
I am a bit embarassed but I literally have no understanding of what this is saying.
If the loan is $100 dollars and I have repaid $50, therefore I have $50 left to repay.
If the discount rate is 0% then the outstanding interest is $0 and I have to repay just the principal, so if anything, the amount of debt will go up if interest rates are >0%. If interest rates are negative, then you would be receiving money from the lender which means there is less debt outstanding.