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? 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. 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.
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? 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. 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.
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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3. Present value
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?
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 .
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.
Which of the following investments that pay will $18,500 in 8 years will have a higher price today?
The security that earns an interest rate of 8.50%.
The security that earns an interest rate of 12.75%.
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 13.80%. 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?
An investment that matures in seven years
An investment that matures in six years
Which of the following is true about present value calculations?
Other things remaining equal, the present value of a future cash flow decreases if the investment time period increases.
Other things remaining equal, the present value of a future cash flow increases if the investment time period increases.
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