Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:4. 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 increases.
O Other things remaining equal, the present value of a future cash flow decreases if the investment time period increases.
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