Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter 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 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.)
What does WRF = -0.50 mean?
Group of answer choices
The investor can borrow money at the risk-free rate.
The investor can lend money at the current market rate.
The investor can borrow money at the current market rate.
The investor can borrow money at the prime rate of interest.
The investor can lend money at the prime rate of interest.
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…
Chapter 3 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
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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- 8. 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_forwardYou deposit $100 today, $200 one year from now, and $300 three years from now. How much money will you have at the end of year three if there are different annual interest rates per period according to the following diagram?arrow_forwardWhich of the following statements about the time value of money is true? a.) A dollar in hand today is worth less than a dollar to be received in the future. b. ) The value of a dollar invested at a positive interest rate decreases over time. c.) The further in the future you receive a dollar, the less it is worth today. d.)The higher the rate of interest, the more likely an investor will elect to consume at present and forgo invest his funds.arrow_forward
- How long will it take to double your investment if the interest rate is r=0.06 (r=6%)?arrow_forwardIf you have two options where to invest your money, which one will you choose? Option 1 offers 11% simple interest rate per annum, while option 2 offers 10% simple discount rate per annum. Explain your answer.arrow_forward1. A consumer, who is initially a lender, remains a lender even after a decline in interest rates. Is this consumer better off or worse off after the change in interest rates? If the consumer becomes a borrower after the change is he better off or worse off? 2. What is the present value of $100 one year from now if the interest rate is 10%? What is the present value if the interest rate is 5%?arrow_forward
- (Use Calculator or Formula Approach) Suppose you had a relative deposit $10 at 5.5% interest 200 years ago. How much would the investment be worth today?arrow_forward(Use Calulator or Formula Approach) Suppose you begin saving for your retirement by depositing $2,000 per year in an IRA. If the interest rate is 7.5%, how much will you have in 40 years?arrow_forwardSuppose the interest rate is 3.6% b. Having $650 in one year is equivalent to having what amount today? c. Which would you prefer, $650 today or $650 in one year? Does your answer depend on when you need the money? Why or why not? **round to the nearest cent**arrow_forward
- Assume you’re an investor and you expect interest rate to rise in the near future, how would this affect your investment decision in the short and in the long term. Assume you’re a potential borrower and you anticipate that interest rate will decline in the near future. How will affect your borrowing decision in the short term as well as in the long term.arrow_forwardConsider 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_forwardWill doubling the interest rate on an investment cut the time it takes to earn the same amount of interest in half? Could you provide an example?arrow_forward
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