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Read each statement below indicate if it true or false, and give a brief explanation of your answer.

1. When a bond is sold at a discount, the cash received is less than the present value of the future cash flows from the bond, based on the market rate of interest on the date of issue.

A the discount amount equals to the difference between the cash received and the present value of the future cash flows.

B. the cash received is more than the present value of the future cash flows.

C. the cash received is equal to the present value of the future cash flows.

D. because the market rate of interest is used when calculating the present value of the future cash flows.

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Jarrod Robel
Jarrod RobelLv2
29 Sep 2019

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Consider the mixed streams of cash flows in the following table
Year. Cash flow stream
A. B
1. 22500. 7500
2. 18750. 11250
3. 15000. 15000
4. 11250. 18750
5. 7500. 22500
Totals. 75000. 75000

Find the present value of each stream A and B using a 12% discount rate
Compare the calculated present values and discuss them in light of the in discounted cash flows totaling 75,000 in each case

Choose correct fill ins . cash flows stream A with a present value of ........is higher or lower than cash flow stream B present value of ......... Because the larger or smaller cash inflows occur in A in the early years when the present value is greater, while the smaller or larger cash flows are received further in the earlier years or future.

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QUESTION 2 The process of converting an amount given at the present time into a future value is called: A. annualizing. B. discounting. C. compounding. D. capital budgeting. 2 points

QUESTION 3 Juan Vinson is planning to buy a house in five years. He is looking to invest $25,000 today in an index mutual fund that will provide him a return of 12 percent annually. How much will he have at the end of five years? (Round to the nearest dollar.) A. $45,000 B. $28,000 C. $44,059 D. $28,530 2 points

QUESTION 4 Which of the following statements is true with respect to the present value of a future amount? A. The higher the discount rate, the higher the present value of a single sum for a given time period. B. The relation between present value and time is exponential. C. The greater the time period, the higher the present value of a single sum for a given interest rate. D. The lower the discount rate, the lower the present value of a single sum for a given time period. 2 points

QUESTION 5 Which of the following statements is true of the rule of 72? A. It can be used to determine the amount of time it takes to double an investment. B. It is fairly accurate for interest rates between 25 and 50 percent. C. It states that the time to double your money (TDM) approximately equals 72/i, where i represents the years it takes to double your investment. D. It can be used to estimate approximate compound interest earned for a period of 72 days. 2 points

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QUESTION 7 The present value of multiple cash flows is: A. greater than the sum of the cash flows. B. equal to the sum of all the cash flows. C. less than the sum of the cash flows. D. higher or lower than the cash flows depending on the interest rate. 2 points

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