Which of the following is true about finding the present value of cash flows? O Finding...

Transcribed Image Text:

Which of the following is true about finding the present value of cash flows? 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. 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. Which of the following investments that pay $17,500 in 13 years will have a higher price today? Assume that both investments have equal risk. The security that earns an interest rate of 15.00%. The security that earns an interest rate of 10.00%. 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 6.80%. Assuming that both investments have equal risk and Eric's investment time horizon is flexible, which of the following investment options is priced lower? An investment that matures in four years An investment that matures in five years Which of the following is true about present value calculations? Other things remaining equal, the present value of a future cash flow increases if the investment time period increases. Other things remaining equal, the present value of a future cash flow decreases if the investment time period increases. Which of the following is true about finding the present value of cash flows? 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. 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. Which of the following investments that pay $17,500 in 13 years will have a higher price today? Assume that both investments have equal risk. The security that earns an interest rate of 15.00%. The security that earns an interest rate of 10.00%. 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 6.80%. Assuming that both investments have equal risk and Eric's investment time horizon is flexible, which of the following investment options is priced lower? An investment that matures in four years An investment that matures in five years Which of the following is true about present value calculations? Other things remaining equal, the present value of a future cash flow increases if the investment time period increases. Other things remaining equal, the present value of a future cash flow decreases if the investment time period increases.

Answer rating: 100% (QA)

Q1 Statement 2 is correct Statement 1 is actually the definition for future value Present value is t... View the full answer