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 6.80%. 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 six years O An investment that matures in five 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.
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 6.80%. 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 six years O An investment that matures in five 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: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 $15,500 in 8 years will have a lower price today?
O The security that earns an interest rate of 5.50%.
O The security that earns an interest rate of 8.25%.
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
6.80%. 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 six years
O An investment that matures in five 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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