Answered: All else equal, as market interest…

All else equal, as market interest rates fall, the present value of a future cash flow. the statement A B C Increases Decreases Does not change Select the answer that best completes

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk

Section: Chapter Questions

Problem 3Q: Why is it true, in general, that a failure to adjust expected cash flows for expected inflation...

See similar textbooks

Related questions

Q: 1._____________ is the rate at which the net present value becomes zero. a. None of the options b.…

A: EXPLANATION:- Internal rate of return (IRR) is a way of measuring the value of return on the…

Q: A) Inflation rate; B) Interest rate; C) Not doing something; 2. People prefer to receive cash: A)…

A: (Note: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the…

Q: If the expected rate of return for the market is not much greater than the risk-free rate of return,…

A: If the expected rate of return for the market is not much greater than the risk-free rate of return,…

Q: Which of the following is NOT true? In risk-neutral valuation the risk-free rate is used to discount…

A: Risk-neutral valuation produces a valuation that is correct in all situations not just those where…

Q: Discounting an investment’s cash flows using the internal rate of return will result in which of the…

A: Introduction: The internal rate of return (IRR) is a research and consulting metric used to assess…

Q: 24 The likely effect of discounting nominal cash flows with real interest rates will be to: A make…

A: Net Present value is present value of cash flow minus initial investment

Q: Multiple Choice Time and future values are inversely related, all else held constant. Interest rates…

A: Money has time value, value of money changes with time due to the interest rate and it is not same…

Q: An investment computed at compound interest is always a better option than an investment computed at…

A: Simple interest is based on the principal amount of an investment. Compound interest is based on…

Q: cash flow frequ ot the same, one W oved: the period

A: Period interest rate approach : In simple words, the period interest rate approach refers to the…

Q: An investment is guaranteed to have a unique value of IRR if which of the following is true? a.…

A: Given: The unique IRR value in the investment.

Q: Call options' value go up if the market perceives the underlying asset to be undervalued. S2: Put…

A: The two statements are given as: STATEMENT 1: Call options' value go up if the market perceives the…

Q: echnical problems associated with the internal rate of return include:

A: IRR (Internal Rate of Return): It is the rate of return that makes the net present value of the…

Q: Which of the following is NOT true? In risk-neutral valuation the risk-free rate is used to…

A: In risk-neutral valuation, it is assumed that the expected return on all investments is risk-free…

Q: Which of the following statements is CORRECT? a. The future value of an annuity table is most…

A: Time value concept is useful to evaluate any investment opportunities. One can understand what is…

Q: The present value of a future amount: a. will always be less than the future amount b. can be…

A: Present value = Future value / (1+i)^twherei = discount ratet = number of periods

Q: Market risk ________. a. is equal to the rate of return generated by a risk-free asset b.…

A: By simple diversification the total risk can be reduced but can not be totally eliminated. The…

Q: which one is correct please confirm? Q2: "An increase in the volatility of the underlying asset,…

A: if we applied in options the higher the given shift over then the given time period, the higher the…

Q: When interest rates rise the value of the CDOs will O a. Rise O b. Fall Oc. Neutralise…

A: Answer: CDO are collateralized debt obligation that is backed by asset issued by Special Purpose…

Q: ding to the time value of money concept, also referred to as the present discounted value, is based…

A: Time value of concepts as the time period goes on due to the inflation goes on increasing and hence…

Q: Which of the following statements is true? Multiple Choice When NPV is 0, the IRR is equal to…

A: Net present value (NPV) is the value of all the cash flow of the investment (positive and negative)…

Q: Consider the money market. What happens and why to interest rates during an economic expansion…

A: During business cycle expansion, there is an increase in income, employment, and real output with in…

Q: If the internal rate of return (IRR) of a well-behaved investment alternative is equal to MARR,…

A: MARR is the minimum return the management requires from a project after adjusting the risks and…

Q: 13. In cash flow estimation and risk analysis, real rate will be equal to nominal rate if there is…

A: The objective of the question is to identify the condition under which the real rate of return is…

Q: You plan to analyze the value of a potential investment by calculating the sum of the present values…

A: The present value of cash flows is computed by discounting the future cash flows with the relative…

Q: Why is it true, in general, that a failure to adjust expected cash flows forexpected inflation…

A: Expected cash flow is the cash flow which is expected to be generated from the project. Higher are…

Q: When does the present economy studies do or use? a. When interest rate is not given b. When time…

A: Economy studies is defined as the study, which used to provide the framework as well as the ten most…

Q: Which of the following statements true? I. All else equal, an increase in storage costs, decreases…

A: Storage cost is the cost of physically storing the assets by the treasuries, generally applicable in…

Q: Suppose the market is wild; it is modeled by o→∞0. (a) What is the value of a Call? (b) What is the…

A: If the market is modeled by a standard deviation of infinity, then it implies that the market is…

Q: Which one of the following is the advantage of payback period method? a. Does not consider time…

A: Payback period = invitial investment / annual cashflow

Q: Which of the following statements correctly describe how the present value of a future expected cash…

A: The present value of future cash flows is the value which is derived by discounting the future cash…

Q: If a financial asset has an expected return that is greater than what is necessary to compensate for…

A: If expected return is more than necessary for compensating risk, investors are earning alpha return…

Q: There are some cases in which the present worth (( PW )) of an investment is positive while its…

A: Investments are the methods adopted by individuals and corporations for the purpose of parking or…

Q: When interest rates increase, with all else remaining the same, which of the following is true?…

A: both the call option and put option will get affected. But the rise in the interest will increase…

Question

All else equal, as market interest rates fall, the present value of a future cash flow
the statement.
A
B
C
Increases
Decreases
Does not change
Select the answer that best completes

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Define=present value

VIEW

Step 2: Explanation

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Why is it true that a reinvestment rate is implicitly assumed whenever we find thepresent value of a future cash flow? Would it be possible to find the PV of a FV withoutspecifying an implicit reinvestment rate?
Cash flows cannot be added together unless. O they are both negative O the problem is using compound interest O they are both positive O they occur during the same time period
An increase in the discount rate will______ O a. Reduce the present value of future cash flows O b. Increase the present value of future cash flows c.Have no effect on net present value Od. Compensate for reduced risk
Which of the following discounts future cash flows to their present value at the expected rate of return, and compares that to the Initial Investment? A. internal rate of return (IRR) method B. net present value (N PV) C. discounted cash flow model D. future value method
Which figure of merit provides an interest rate at which the present value of the future cash flows equals the amount invested? a) NPV b) IRR c) Cap Rate d) DCF Please ensure accuracy and explain your choice
True/false Under IFRS, the discount rate should reflect risks for which future cash flow estimates have been adjusted.
1. The opportunity costs are related with: A) Inflation rate; B) Interest rate; C) Not doing something; 2. People prefer to receive cash: A) Sooner than later; B) Later than sooner; C) Doesn't matter when; 3. Financial decisions must be based on: A) Risk assessment; B) Time adjusted cash flows; C) Inflation assessment; 4. Future vale is equal: A) Initial investment X (1 + k)" ; B) Initial investment X (1+k.n); C) A+B 5. The term (1 + k)" is known as: A) Present value interest factor; B) Future value interest factor; C) Risk assessment factor; 1 (1+ p)" A) Present value interest factor; B) Future value interest factor; C) Risk assessment factor; 6. The term is known as: 7. A present value problem can involve: A) Series of future cash flows; B) Single future cash flow; C) A+B 8. Present value of series of future cash flow is presented in equation: n A) PV = CF₁ t=1 n B) PV = Σ t=1 1 (1+p)" CFt (1+p)" ; C) A+B 9. Cash flows directly attributed to the evaluating projects are known as: A)…
Which of the following statements correctly describe how the present value of a future expected cash flow may vary with different factors? Group of answer choices A. More than one of the other options are correct. B. As the expected loss of purchasing power due to inflation increases, then, holding all else constant, the present value of a future expected cash flow will decrease. C. As the period of time we have to wait until we receive a future expected cash flow decreases, then, holding all else constant, the present value of the cash flow will decrease. D. As the risk associated with a future expected cash flow increases, then, holding all else constant, the present value of the cash flow will increase.
When cash flow frequency and compounding frequency are not the same, one of two approaches must be employed: the period interest rate approach or the effective interest rate approach Select one: True False
An increase in the discount rate will____ a. Reduce the present value of future cash flows b. Increase the present value of future cash flows c. Have no effect on net present value d. Compensate for reduced risk
Which of the following is NOT true? In risk-neutral valuation the risk-free rate is used to discount expected cash flows Options can be valued based on the assumption that investors are risk neutral Risk-neutral valuation provides prices that are only correct in a world where investors are risk-neutral In risk-neutral valuation the expected return on all investment assets is set equal to the risk-free rate
,Match the following terms with the appropriate definition.Effective yield or interest rateMonetary liabilityCompound interestPresent ValueFuture value of a single amountA.Fixed obligation to pay an amount in cash.B.The rate at which money will actually grow.C.Interest accumulates on interest.D.Current worth of future cash flows.E.The money to which an amount invested will grow over time.