2. Present value Aa Aa Finding a present value is the reverse of finding a future value. Which of the following is true about finding the present value of cash flows? O Finding the present value of cash flows tells you what a cash flow will be worth in future years at a specified rate of return. O Finding the present value of cash flows tells you how much you need to invest today so that it grows to a given future amount at a specified rate of return. Which of the following investments that pay will $13,500 in 13 years will have a higher price today? The security that earns an interest rate of 7.00%. The security that earns an interest rate of 10.50%. Eric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest rate) of holding the security is 12.40%. Assuming that both investments have equal risk and Eric's investment time horizon is flexible, which of the following investment options will exhibit the lower price? O An investment that matures in eight years O An investment that matures in nine years Which of the following is true about present value calculations? O Other things remaining equal, the present value of a future cash flow decreases if the discount rate increases. O other things remaining equal, the present value of a future cash flow increases if the discount rate increases.
2. Present value Aa Aa Finding a present value is the reverse of finding a future value. Which of the following is true about finding the present value of cash flows? O Finding the present value of cash flows tells you what a cash flow will be worth in future years at a specified rate of return. O Finding the present value of cash flows tells you how much you need to invest today so that it grows to a given future amount at a specified rate of return. Which of the following investments that pay will $13,500 in 13 years will have a higher price today? The security that earns an interest rate of 7.00%. The security that earns an interest rate of 10.50%. Eric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest rate) of holding the security is 12.40%. Assuming that both investments have equal risk and Eric's investment time horizon is flexible, which of the following investment options will exhibit the lower price? O An investment that matures in eight years O An investment that matures in nine years Which of the following is true about present value calculations? O Other things remaining equal, the present value of a future cash flow decreases if the discount rate increases. O other things remaining equal, the present value of a future cash flow increases if the discount rate increases.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:2. Present value
Aa Aa
Finding a present value is the reverse of finding a future value.
Which of the following is true about finding the present value of cash flows?
O Finding the present value of cash flows tells you what a cash flow will be worth in future years at a specified
rate of return.
O Finding the present value of cash flows tells you how much you need to invest today so that it grows to a
given future amount at a specified rate of return.
Which of the following investments that pay will $13,500 in 13 years will have a higher price today?
The security that earns an interest rate of 7.00%.
The security that earns an interest rate of 10.50%.
Eric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest
rate) of holding the security is 12.40%. Assuming that both investments have equal risk and Eric's investment time
horizon is flexible, which of the following investment options will exhibit the lower price?
O An investment that matures in eight years
O An investment that matures in nine years
Which of the following is true about present value calculations?
O Other things remaining equal, the present value of a future cash flow decreases if the discount rate increases.
O other things remaining equal, the present value of a future cash flow increases if the discount rate increases.
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