Which of the following investments has a higher present value, assuming the same (strictly positive) interest rate applies to both investments? Year Investment X Investment Y $5,000 $7,000 $9,000 $11,000 $9,000 $7,000 $5,000 1 3 4 $11,000 Select one: a. Investment X has a higher present value. b. Investment Y has a higher present value. c. Investment X and Investment Y have the same present value, since the total of the cash flows is the same for both d. No comparison can be made-we need to know the interest rate to calculate the present value

Which of the following investments has a higher present value, assuming the same (strictly positive) interest rate applies to both investments? Year Investment X Investment Y $5,000 $7,000 $9,000 $11,000 $9,000 $7,000 $5,000 1 3 4 $11,000 Select one: a. Investment X has a higher present value. b. Investment Y has a higher present value. c. Investment X and Investment Y have the same present value, since the total of the cash flows is the same for both d. No comparison can be made-we need to know the interest rate to calculate the present value

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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j. Find the PV and the FV of an investment that makes the following end-of-year payments. The interest rate is 8%. Year 1 $100, Year 2 $200, Year 3 $400 Year Payment 1 100 2 200 3 400 Rate 8% To find the PV, use the NPV function: Pv= $581.59 Year Payment x (1+ I)^(N- t) = FV 1 100 2 200 3 400
If Po is the initial price of the security, P₁ is the price after you hold it for a year, and X represents a direct payment, an asset's rate of return is equal to: rate of return = (P₁ - Po) rate of return = (P₁ - Po) + X rate of return = (P₁-Po) / Po + XPo rate of return = (P₁ - Po)/Po + X
(3) Today you have paid $275 for an investment that pays $100 in one year, $500 in two years,and $X in 4 years. Assuming the market interest rate is 100% and the net present value of theinvestment is zero, what must be true about X?(a) X is greater than $2,500(b) X is greater than or equal to $2,000 but less than $2,500(c) X is greater than or equal to $1,500 but less than $2,000(d) X is greater than $1,200 but less than $1,500(e) X is less than or equal to $1,200
Which investment criteria answers the question: "How quickly do we recover our investment, in nominal dollars?" A) net present value B) internal rate of return C) profitability index D) payback period
An decrease in the interest rate will: Multiple select question. increase the future value decrease the present value decrease the future value increase the present value
Investment A has a future value of $600. Investment B has a future value of $500. Both have the same present value. All else equal, which one has the higher interest rate? Select one: a. B b. A c. A=B Clear my choice
4. Present value Finding a present value is the reverse of finding a future value. is the process of calculating the present value of a cash flow or a series of cash flows to be received in the future. Which of the following investments that pay will $10,500 in 13 years will have a lower price today? O The security that earns an interest rate of 21.75%. O The security that earns an interest rate of 14.50%. 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 three years An investment that matures in four 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…
Computing Present Value of Single Amount Under Different Assumptions Compute the present value under each of the four separate investment options. Round interest rate percentages to two decimal places in your calculations (for example, enter .0063 for .6333333%). Round final answer to the nearest whole dollar (for example, enter final answer 2,556 for 2,555.5678). Do not use a negative sign with your answers. Investment FutureAmount Compounding AnnualInterestRate Investment Period (Years) PresentValue Investment A $22,000 Annually 5% 10 Answer Investment B 110,000 Semiannually 6% 5 Answer Investment C 132,000 Quarterly 8% 6 Answer Investment D 156,000 Monthly 10% 5 Answer
20. What is X in the formula: FV = X(1+r) ? Select one: a. The future value of an annuity with X cash flows b. The present value of a single cash flow in one period's time c. The future value of a single cash flow in one period's time d. The present value of an annuity with X cash flows
6. If the effective interest rate is i per period and you invest b dollars at time 0, then the value at time n is b(1 + i)”. For example, if at time 0 you invest $100 at an effective interest rate of 6% per year, then the value at time 1 is $100(1+0.06) = $106. dollars. At time 2, the value will be $100 (1 + 0.06)² = $112.36. Similarly, the present value (value at time 0) of $100 received 2 years from now would be $100(1+0.06)-²≈ $88.99. Sometimes it's convenient to define d = 1/(1 + i) so that we would have $100(1+i)n = $100d". If the interest rate per year is i compounded semiannually, then the effective annual interest rate is (¹ + 2)²³ - 1₁ 1. For example, if the interest rate is 6% per year compounded semiannually, the effective annual interest rate is 1 + .06 2 2 - 1 ≈ 6.09%. If the interest rate per year is i compounded quarterly, then the effective annual interest rate is 4 (¹ + 4) * - 1 1. (a) If the interest rate is 6% per year compounded quarterly, what is the effective…
iii. For each of the following, compute the futurevalue: Present Value $ 2,597 7,834 81,286 213,612 Years 11 7 14 16 Interest Rate 13% 9 12 6 Future Value
To figure out how much total interest that you earn when you reach your investment goal, you ____________. Select one: a. interest rate % * total payments - amount borrowed b. interest rate % * amount borrowed c. # payments * monthly payment - interest rate % * amount borrowed d. # of payments * monthly payment- amount borrowed

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