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present value is the

present value is the

Essentials Of Investments
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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4. 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? 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. 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. Which of the following investments that pay will $5,000 in 12 years will have a higher price today? O The security that earns an interest rate of 8.25%. O The security that earns an interest rate of 5.50%. 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 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? O An investment that matures in ten years O An investment that matures in eleven years Which of the following is true about present value calculations? O Other things remaining equal, the present value of a future cash flow increases if the investment time period increases. O other things remaining equal, the present value of a future cash flow decreases if the investment time period increases.
Transcribed Image Text:4. 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? 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. 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. Which of the following investments that pay will $5,000 in 12 years will have a higher price today? O The security that earns an interest rate of 8.25%. O The security that earns an interest rate of 5.50%. 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 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? O An investment that matures in ten years O An investment that matures in eleven years Which of the following is true about present value calculations? O Other things remaining equal, the present value of a future cash flow increases if the investment time period increases. O other things remaining equal, the present value of a future cash flow decreases if the investment time period increases.
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