Question

In: Finance

Which of the following is not one of the intuitive reasons that a cash flow in...

Which of the following is not one of the intuitive reasons that a cash flow in the future is worth less than a similar cash flow today?

	a.	When there is money inflation, the value of currency decreases over time.
	b.	A promised cash flow in the future may not be received (there is risk).
	c.	People prefer current consumption to future consumption.
	d.	Future income may not be the same as income today.

Which of the following is true about the present value of a regular annuity when compared to the present value of an annuity due with the same payments and interest rate?

	a.	The present value of the annuity due will always be less than the present value of the regular annuity because the regular annuity has one less period of discounting.
	b.	The present value of the annuity due will always be greater than the present value of the regular annuity because the regular annuity has one less period of discounting.
	c.	The present value of the annuity due will always be greater than the present value of a regular annuity because the annuity due has one less period of discounting.
	d.	The present value of the annuity due will always be less than the present value of a regular annuity because the annuity due has one less period of discounting.

As the frequency of discounting increases...

	a.	the present value of an annuity gets larger.
	b.	the present value of a single sum in the future gets smaller.
	c.	the present value of a single sum in the future get larger.
	d.	the future value of a single sum today gets smaller.

When calculating a present value using a higher interest rate in the equation will cause the present value to...

	a.	increase.
	b.	possibly increase or decrease.
	c.	decrease.
	d.	not change

What is the PV of $10,000 expected to be received 5 years from now assuming an 8% annual interest rate?

	a.	$6,867.49
	b.	$6,768.39
	c.	$6,805.83
	d.	$5,402.69

Expert Solution

Which of the following is not one of the intuitive reasons that a cash flow in the future is worth less than a similar cash flow today?

a.	When there is money inflation, the value of currency decreases over time.

Which of the following is true about the present value of a regular annuity when compared to the present value of an annuity due with the same payments and interest rate?

c.	The present value of the annuity due will always be greater than the present value of a regular annuity because the annuity due has one less period of discounting.

Explanation:- Less period of discounting will result in higher present value

As the frequency of discounting increases...

b.	the present value of a single sum in the future gets smaller.

Explanation : due to compounding effect

When calculating a present value using a higher interest rate in the equation will cause the present value to...

c.

decrease.

Explanation: PV = FV / Interest rate factor

What is the PV of $10,000 expected to be received 5 years from now assuming an 8% annual interest rate?

c.

$6,805.83

Explanation: - PV = 10000/(1+8%)^5

jeff jeffy answered 8 months ago

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