Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Textbook Question
Chapter 3, Problem 6P
Suppose the risk-free interest rate is 4%.
- a. Having $200 today is equivalent to having what amount in one year?
- b. Having $200 in one year is equivalent to having what amount today?
- c. Which would you prefer, $200 today or $200 in one year? Does your answer depend on when you need the money? Why or why not?
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Suppose the risk-free interest rate is 4.6%.
Having $600 today is equivalent to having what amount in one year? (Round to the nearestcent.)
Having $600 in one year is equivalent to having what amount today? (Round to the nearestcent.)
Which would you prefer, $600 today or $600 in one year? Does your answer depend on when you need the money? Why or why not? (Round to the nearestcent.)
Suppose the interest rate is 4.4%.
a. Having $550 today is equivalent to having what amount in one year?
b. Having $550 in one year is equivalent to having what amount today?
c. Which would you prefer, $550 today or $550 in one year? Does your answer depend on when you need the money? Why or why not?
a. Having $550 today is equivalent to having what amount in one year?
It is equivalent to $. (Round to the nearest cent.)
Suppose someone offers to pay you $1,000 in one year. Which of the following is/are correct? Select all that apply.
O If inflation goes up, the present value of that $1,000 would go down.
O If your time preference goes up (i.e., you become more impatient), the present value of that $1,000 for you would
go
down.
If interest rates go up, the present value of that $1,000 would also go up.
O If uncertainty in the economy goes up, the present value of that $1,000 would also go up.
Chapter 3 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 3.1 - Prob. 1CCCh. 3.1 - If crude oil trades in a competitive market, would...Ch. 3.2 - How do you compare costs at different points in...Ch. 3.2 - Prob. 2CCCh. 3.3 - What is the NPV decision rule?Ch. 3.3 - Why doesnt the NPV decision rule depend on the...Ch. 3.4 - Prob. 1CCCh. 3.4 - Prob. 2CCCh. 3.5 - If a firm makes an investment that has a positive...Ch. 3.5 - Prob. 2CC
Ch. 3.5 - Prob. 3CCCh. 3.A - The table here shows the no-arbitrage prices of...Ch. 3.A - Suppose security Chas a payoff of 600 when the...Ch. 3.A - Prob. A.3PCh. 3.A - Prob. A.4PCh. 3.A - Prob. A.5PCh. 3.A - Consider a portfolio of two securities: one share...Ch. 3.A2 - Why does the expected return of a risky security...Ch. 3.A2 - Prob. 2CCCh. 3.A3 - Prob. 1CCCh. 3.A3 - Prob. 2CCCh. 3 - Honda Motor Company is considering offering a 2000...Ch. 3 - You are an international shrimp trader. A food...Ch. 3 - Prob. 3PCh. 3 - Prob. 4PCh. 3 - You have decided to take your daughter skiing in...Ch. 3 - Suppose the risk-free interest rate is 4%. a....Ch. 3 - You have an investment opportunity in Japan. It...Ch. 3 - Your firm has a risk-free investment opportunity...Ch. 3 - You run a construction firm. You have just won a...Ch. 3 - Your firm has identified three potential...Ch. 3 - Your computer manufacturing firm must purchase...Ch. 3 - Prob. 12PCh. 3 - Prob. 13PCh. 3 - An American Depositary Receipt (ADR) is security...Ch. 3 - Prob. 15PCh. 3 - An Exchange-Traded Fund (ETF) is a security that...Ch. 3 - Consider two securities that pay risk-free cash...Ch. 3 - Prob. 18P
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- 9. Suppose the interest rate is 3.8%. a. Having $600 today is equivalent to having what amount in one year? b. Having $600 in one year is equivalent to having what amount today? c. Which would you prefer, S600 today or $600 in one year? Does your answer depend on when you need the money? Why or why not? a. Having $600 today is equivalent to having what amount in one year? It is equivalent to $ (Round to the nearest cent.) b. Having $600 in one year is equivalent to having what amount today? It is equivalent to $ (Round to the nearest cent.) c. Which would you prefer, $600 today or $600 in one year? Does your answer depend on when you need the money? Why or why not? "Because money today is worth more than money in the future, $600 today is preferred to $600 in one year. This answer is correct even if you don't need the money today, because by investing the $600 you receive today at the current interest rate, you will have more than $600 in one year." Is the above statement true or…arrow_forwardNow explain this meaning of G(s, t) when t is less than s. We go backwards in For tarrow_forward8. What might be your "life factors" (not interest rates) that you might vou consider when choosing to do a single investment versus a monthly investment? Write a full sentence or two.arrow_forward4. 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…arrow_forwardPlease respond b, c, d, and e if possible.arrow_forwardWhat is the interest rate “r” if PV=$100 and the FV=$350 in year t=12?arrow_forwardFor any positive interest rate, the future value of $100 increases with the passage of time. Thus, the longer the period of time, the future value Select one: a. weaker b. the lower c. the greater d. absolute valuearrow_forwardHow long will it take to double your investment if the interest rate is r=0.06 (r=6%)?arrow_forwardYou are researching interest rates and their forecasts. Your research provides you with the following: 1-year rate = 6% 2-year rate = 6.125% 3-year rate = 8.5% 1-year rate, 2 years from now = 6.5% Assuming you can borrow $1 million, can you use this interest rate information to earn some risk-free profit. if yes, compute the profit. Show detailed workings. Assume that the pure expectations theory applies.arrow_forwardIf you have two options where to invest your money, which one will you choose? Option 1 offers 11% simple interest rate per annum, while option 2 offers 10% simple discount rate per annum. Explain your answer.arrow_forwardIf the risk-free rate of interest (r) is 10%, then you should be indifferent between receiving $100 in one year or A. $100.00 today. O B. $90.91 today. O C: $109.09 today. O D. none of the abovearrow_forward(Use Calulator or Formula Approach) Suppose you begin saving for your retirement by depositing $2,000 per year in an IRA. If the interest rate is 7.5%, how much will you have in 40 years?arrow_forwardarrow_back_iosSEE MORE QUESTIONSarrow_forward_ios
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