EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103164535
Author: DeMarzo
Publisher: PEARSON
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Textbook Question
Chapter 3, Problem 6P
Suppose the risk-free interest rate is 4%.
- a. Having $200 today is equivalent to having what amount in one year?
- b. Having $200 in one year is equivalent to having what amount today?
- c. Which would you prefer, $200 today or $200 in one year? Does your answer depend on when you need the money? Why or why not?
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Suppose the risk-free interest rate is 4.6%.
Having $600 today is equivalent to having what amount in one year? (Round to the nearestcent.)
Having $600 in one year is equivalent to having what amount today? (Round to the nearestcent.)
Which would you prefer, $600 today or $600 in one year? Does your answer depend on when you need the money? Why or why not? (Round to the nearestcent.)
Suppose the interest rate is 4.4%.
a. Having $550 today is equivalent to having what amount in one year?
b. Having $550 in one year is equivalent to having what amount today?
c. Which would you prefer, $550 today or $550 in one year? Does your answer depend on when you need the money? Why or why not?
a. Having $550 today is equivalent to having what amount in one year?
It is equivalent to $. (Round to the nearest cent.)
Suppose someone offers to pay you $1,000 in one year. Which of the following is/are correct? Select all that apply.
O If inflation goes up, the present value of that $1,000 would go down.
O If your time preference goes up (i.e., you become more impatient), the present value of that $1,000 for you would
go
down.
If interest rates go up, the present value of that $1,000 would also go up.
O If uncertainty in the economy goes up, the present value of that $1,000 would also go up.
Chapter 3 Solutions
EBK CORPORATE FINANCE
Ch. 3.1 - Prob. 1CCCh. 3.1 - If crude oil trades in a competitive market, would...Ch. 3.2 - How do you compare costs at different points in...Ch. 3.2 - Prob. 2CCCh. 3.3 - What is the NPV decision rule?Ch. 3.3 - Why doesnt the NPV decision rule depend on the...Ch. 3.4 - Prob. 1CCCh. 3.4 - Prob. 2CCCh. 3.5 - If a firm makes an investment that has a positive...Ch. 3.5 - Prob. 2CC
Ch. 3.5 - Prob. 3CCCh. 3.A - The table here shows the no-arbitrage prices of...Ch. 3.A - Suppose security Chas a payoff of 600 when the...Ch. 3.A - Prob. A.3PCh. 3.A - Prob. A.4PCh. 3.A - Prob. A.5PCh. 3.A - Consider a portfolio of two securities: one share...Ch. 3.A2 - Why does the expected return of a risky security...Ch. 3.A2 - Prob. 2CCCh. 3.A3 - Prob. 1CCCh. 3.A3 - Prob. 2CCCh. 3 - Honda Motor Company is considering offering a 2000...Ch. 3 - You are an international shrimp trader. A food...Ch. 3 - Prob. 3PCh. 3 - Prob. 4PCh. 3 - You have decided to take your daughter skiing in...Ch. 3 - Suppose the risk-free interest rate is 4%. a....Ch. 3 - You have an investment opportunity in Japan. It...Ch. 3 - Your firm has a risk-free investment opportunity...Ch. 3 - You run a construction firm. You have just won a...Ch. 3 - Your firm has identified three potential...Ch. 3 - Your computer manufacturing firm must purchase...Ch. 3 - Prob. 12PCh. 3 - Prob. 13PCh. 3 - An American Depositary Receipt (ADR) is security...Ch. 3 - Prob. 15PCh. 3 - An Exchange-Traded Fund (ETF) is a security that...Ch. 3 - Consider two securities that pay risk-free cash...Ch. 3 - Prob. 18P
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- 9. Suppose the interest rate is 3.8%. a. Having $600 today is equivalent to having what amount in one year? b. Having $600 in one year is equivalent to having what amount today? c. Which would you prefer, S600 today or $600 in one year? Does your answer depend on when you need the money? Why or why not? a. Having $600 today is equivalent to having what amount in one year? It is equivalent to $ (Round to the nearest cent.) b. Having $600 in one year is equivalent to having what amount today? It is equivalent to $ (Round to the nearest cent.) c. Which would you prefer, $600 today or $600 in one year? Does your answer depend on when you need the money? Why or why not? "Because money today is worth more than money in the future, $600 today is preferred to $600 in one year. This answer is correct even if you don't need the money today, because by investing the $600 you receive today at the current interest rate, you will have more than $600 in one year." Is the above statement true or…arrow_forwardThe amount of money originally put into an investment is known as the present value P of the investment. For example, if you buy a $50 U.S. Savings Bond that matures in 10 years, the present value of the investment is the amount of money you have to pay for the bond today. The value of the investment at some future time is known as the future value F. Thus, if you buy the savings bond mentioned above, its future value is $50. If the investment pays an interest rate of r (as a decimal) compounded yearly, and if we know the future value F for t years in the future, then the present value P = P(F, r, t), the amount we have to pay today, can be calculated using the formula below. P = F × 1 (1 + r)t We measure F and P in dollars. The term 1/(1 + r)t is known as the present value factor, or the discount rate, so the formula above can also be written as the following. P = F × discount rate (a) Explain what information the function P(F, r, t) gives you. The function…arrow_forward1) What is the loanable funds market? 2) Calculate the following: You save $100 and want to see how much you will earn based on the following interest rates Interest Rate Value after 1 month -1% ? 0.5% ? 1% ? 2% ? 3) What supply factors affect the Loanable Funds market? 4) What demand factors affect the Loanable Funds market?arrow_forward
- Now explain this meaning of G(s, t) when t is less than s. We go backwards in For tarrow_forwardD7) Consider two riskless perpetuities: (i) pays $120 every year; (ii) pays $10 every month. If the rates of returns of the two perpetuities are the same, investors must buy perpetuity (ii) because it makes more interest payments.arrow_forward8. What might be your "life factors" (not interest rates) that you might vou consider when choosing to do a single investment versus a monthly investment? Write a full sentence or two.arrow_forward4. 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…arrow_forwardPlease respond b, c, d, and e if possible.arrow_forwardWhat is the interest rate “r” if PV=$100 and the FV=$350 in year t=12?arrow_forwardFor any positive interest rate, the future value of $100 increases with the passage of time. Thus, the longer the period of time, the future value Select one: a. weaker b. the lower c. the greater d. absolute valuearrow_forwardHow long will it take to double your investment if the interest rate is r=0.06 (r=6%)?arrow_forwardThe present value represents the amount of money you would have to deposit today in order to match what you would get from the income stream at the future date. The formula is Time = M = i Future value represents the total amount of money you would have if you deposit the income stream until a future date. The formula is To start our problem we need to identify the variables. Rate =r= i Income Stream S(t) = i Present Value = years % M 1. 0 S (t) et dt. Future Value = Present Value* erM dollars/yeararrow_forwardarrow_back_iosSEE MORE QUESTIONSarrow_forward_ios
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