Calculate the real cash flows on the 7 percent U.S. Treasury bond (see Section 3.5) assuming annual
Question:
Calculate the real cash flows on the 7 percent U.S. Treasury bond (see Section 3.5) assuming annual interest payments and an inflation rate of 2 percent. Now show that by discounting these real cash flows at the real interest rate you get the same PV that you get when you discount the nominal cash flows at the nominal interest rate.
Step by Step Answer:
The 7 percent US Treasury bond see text Section 35 matures ...View the full answer
Principles of Corporate Finance
ISBN: 978-0072869460
7th edition
Authors: Richard A. Brealey, Stewart C. Myers
Related Video
The present value of future cash flows is calculated to determine the value today of a stream of future cash flows. It is calculated by discounting the future cash flows to their present value using a discount rate. The discount rate reflects the time value of money and the risk of the cash flows. It is important because it helps in making investment decisions, capital budgeting, loan decision making, and financial planning. By discounting future cash flows to their present value using a discount rate, it takes into account the time value of money and the risk associated with the cash flows. This allows investors, lenders, and financial planners to evaluate the viability of potential investments, projects, or loan applications, and to estimate the future value of investments or savings. calculating the present value of future cash flows is important in making investment decisions, capital budgeting, loan decision making, and financial planning. It helps to determine the viability of long-term projects, evaluate loan applications, and estimate the future value of investments or savings.
Students also viewed these Corporate Finance questions
-
If an inflation rate of 2 percent, normally distributed with a standard deviation of .333 percent, is assumed, what is the expected NPV of the project in Problem 7, and what is the probability that...
-
Calculate the real interest rate per month if the nominal inflation-adjusted interest rate per year, compounded monthly, is 18% and the inflation rate per month is 0.5%.
-
Discounting a future cash flow at 15 percent results in a lower present value than does discounting the same cash flow at 10 percent. Explain why.
-
Outline suggestions to make observation a useful, reliable requirements elicitation technique.
-
What change in atomic number occurs when a nucleus emits an alpha particle? A beta particle? A gamma ray?
-
Financial information for American Eagle is presented in Appendix A at the end of the book, and financial information for Buckle is presented in Appendix B at the end of the book. Required: Determine...
-
What are some of the main features of economic inequality in the United States?
-
Use the following ratio information for Johnson International and the industry averages for Johnson's line of business to: a. Construct the DuPont system of analysis for both Johnson and the...
-
All policies offered by an insurer in a given line of business have a coverage period of one year. Below there are aggregate amounts of premium written within this line of business during subsequent...
-
The Ploughman family has owned and operated a 640-acre farm for several generations. The family now needs to make a decision about the mix of livestock and crops for the coming year. By assuming that...
-
Derive the formula for a growing (or declining) annuity.
-
The present value of investing in a stock should not depend on how long the investor plans to hold it. Explain why.
-
How can managers encourage ethical behavior in the workplace?
-
Jason Berry submitted his proposalhoweverhe forgot to enclose the budget. For the above sentence, insert any necessary semicolons, commas, or colons. Count the number of marks you add. Write that...
-
Workers were asked to wear badges with tiny sensors to monitor their communication and activity patterns at Bank of America. Your Task. Business writing is more forceful when it uses active-voice...
-
Which sentence is more emphatic? Why? a. The new restaurant will attract foot traffic and also serve unique burgers. b. The new restaurant will attract foot traffic and, most important, will serve...
-
Bottled water consumption rose 2.2 percent in volume last year. Your Task. For each of the above numbered sentences, select the letter that identifies its type: a. Simple sentence b. Compound...
-
Coca-Cola hired a creative director PepsiCo tried a new bottle design. Your Task. Identify the sentence fault (fragment, run-on sentence, comma splice). Then revise to remedy the fault.
-
Webster, Inc., dealt in automobile accessories at wholesale. Although it manufactured a few items in its own factory, among them windshield wipers, Webster purchased most of its inventory from a...
-
On the basis of the details of the following fixed asset account, indicate the items to be reported on the statement of cashflows: ACCOUNT Land ACCOUNT NO. Balance Date Item Debit Credit Debit Credit...
-
Use the data in Appendix D to calculate the standard cell potential for each of the following reactions. Which reactions will occur spontaneously? (a) H(g) + F2 (g) (b) Cu(s) + Ba+ (aq) 2 H(aq) + 2 F...
-
True or false? a. Most commercial bank loans are made under commitment. b. A line of credit provides the lender with a put option. c. Bank term loans typically have a maturity of several years. d. If...
-
Complete the passage below by selecting the most appropriate terms from the following list: floating charge, syndicated, commercial paper, warehouse receipt, arranger, collateral, commitment fee,...
-
Listed below are some common terms of sale. Can you explain what each means? a. 2/30, net 60. b. 2/5, EOM, net 30. c. COD.
-
What are the challenges and strategies for implementing TPM in highly regulated industries, such as pharmaceuticals or aerospace? How can TPM contribute to compliance and quality assurance in these...
-
In multi-site manufacturing operations, what role does TPM play in standardizing maintenance practices and ensuring consistency across different plants or facilities? Discuss the challenges and...
-
Identify and evaluate the components of a comprehensive total rewards and motivation system? Illustrate with specific examples.
Study smarter with the SolutionInn App