Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- Can I get some help with this practice questionarrow_forwardConsider two assets with the following cash flow streams: Asset A generates $4 at t=1, $3 at t=2, and $10 at t=3. Asset B generates $2 at t=1, $X at t=2, and $10 at t=3. Suppose X=6 and the interest rate r is constant. For r=0.1, calculate the present value of the two assets. Determine the set of all interest rates {r} such that asset A is more valuable than asset Draw the present value of the assets as a function of the interest rate. Suppose r=0.2. Find the value X such that the present value of asset B is 12. Suppose the (one-period) interest rates are variable and given as follows: r01=0.1,r12=0.2, r23=0.3. Calculate the yield to maturity of asset A. (You can use Excel or ascientific calculator to find the solution numerically.)arrow_forwardDirection: Define, draw the cash flow diagram, and write the general formula of the following: ANNUITY 1. Ordinary Annuity a) Sum/Future of Ordinary Annuity b) Present Worth of Ordinary Annuity 2. Annuity Due 3. Deferred Annuityarrow_forward
- Present and Future Values of Single Cash Flows for Different Interest Rates Use both the TVM equations and a financial calculator to find the following values. (Hint: If you are using a financial calculator, you can enter the known values and then press the appropriate key to find the unknown variable. Then, without clearing the TVM register, you can "override" the variable that changes by simply entering a new value for it and then pressing the key for the unknown variable to obtain the second answer. This procedure can be used in parts b and d, and in many other situations, to see how changes in input variables affect the output variable.) Do not round intermediate calculations. Round your answers to the nearest cent. An initial $700 compounded for 10 years at 6%. $ An initial $700 compounded for 10 years at 12%. $ The present value of $700 due in 10 years at a 6% discount rate. $ The present value of $700 due in 10 years at a 12% discount rate. $arrow_forwardPresent and Future Values of Single Cash Flows for Different Interest Rates Use both the TVM equations and a financial calculator to find the following values. (Hint: If you are using a financial calculator, you can enter the known values and then press the appropriate key to find the unknown variable. Then, without clearing the TVM register, you can "override" the variable that changes by simply entering a new value for it and then pressing the key for the unknown variable to obtain the second answer. This procedure can be used in parts b and d, and in many other situations, to see how changes in input variables affect the output variable.) Do not round intermediate calculations. Round your answers to the nearest cent. An initial $700 compounded for 10 years at 3%. $ An initial $700 compounded for 10 years at 6%. $ The present value of $700 due in 10 years at a 3% discount rate. $ The present value of $700 due in 10 years at a 6% discount rate. $arrow_forwardLO 1 8.3 Payback Period Concerning payback: Describe how the payback period is calculated and describe the information this measure provides about a sequence of cash flows. What is the payback criterion decision rule? a. b. What are the problems associated with using the payback period as a means of evaluating cash flows? What are the advantages of using the payback period to evaluate cash flows? Are there any circumstances under which using payback might be appropriate? Explain. с.arrow_forward
- Certainty Equivalent Cash flow (CEQ) is obtained through converting the expected cash flows by a ______ shift of risk. If we discount the CEQ by the time value of money, we will have the present value _______ discounting future cash flow by time and risk discounting factor. Therefore, CEQ is always ______ than the expected cash flow. Find the correct choice to fill the blanks. A. time varying, same as, lowerB. constant, same as, lower C. time varying, higher than, lowerD. constant, same as, higherarrow_forwardwe can still calculate the IRR on incremental cash flows. True or false? Explain with example?arrow_forwardThe Profitability Index (PI) is a financial metric that depends only on the Present Value (PV) of expected future cash inflows. This statement is: a False. b Only partly true. c True d Only partly false.arrow_forward
- Net present value is better than Payback period (PP)... OA. because it is a simple method OB. because it is a quick method ignoring the time value of money OC. because it fully addresses the timing of the cash flows O D. because it fully addresses the irrelevant cash flowsarrow_forwardIf you are compounding a cash flow, you are ________. A: Finding a future value B: Finding a present value C: Multiplying a future cash flow by the number of years it is from the present D: None of the abovarrow_forwardThis can occur when a selection among mutually exclusive alternatives is based wrongly on maximization of IRR on the total cash flow. O a. Investment errors O b. Ranking errors Ос. Incremental errors Od. Alternative errorsarrow_forward
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