Business, 24.03.2020 01:08 LunaShiner

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 $18,500 in 5 years will have a higher price today?

The security that earns an interest rate of 5.50%.

The security that earns an interest rate of 8.25%.

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 8.20%. 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?

An investment that matures in five years

An investment that matures in six years

Which of the following is true about present value calculations?

Other things remaining equal, the present value of a future cash flow increases if the investment time period increases.

Other things remaining equal, the present value of a future cash flow decreases if the investment time period increases.

Answers: 1

Show answers

Answers

Answer from: brad7330

the investment with the interest rate of 5.5% has the higher price today.

The investment that matures in 6 years has the lower price.

Other things remaining equal, the present value of a future cash flow decreases if the investment time period increases.

Explanation:

Present value is the sum of discounted cash flows.

To determine which investment would have the greater price today, one has to calculate the present value of the investments.

Present value can be calculated using a financial calculator.

For the first investment,

Cash flow from year 1 to 4 = 0

Cash flow in year 5 = $18,500

Interest rate = 5.50%

Present value = $14,154.99

For the second investment,

Cash flow from year 1 to 4 = 0

Cash flow in year 5 = $18,500

Interest rate = 8.50%

Present value = $12,303.34

From the calculation, the investment with the interest rate of 5.5% has the higher present value. So, the investment with the interest rate of 5.5% has the higher price today.

2. To determine which investment option has a lower price today, find the present value of the two options.

The present value of the investment that matures in 5 years is $674.32

The present value of the investment that matures in 6 years is $623.21

The investment that matures in 6 years has the lower price.

From the above calculations, as years increase, the present value and price of an investment falls.

To find the PV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

I hope my answer helps you

Answer from: Quest

They can use the north star to estimate their location in the ocean.

Answer from: Quest

explanation:

well obviously you must be dumb if you dont noe dat

Another question on Business

Business, 21.06.2019 19:30

Consumer surplus is: the difference between the price of a product and what consumers were willing to pay for the product. the difference between the discounted price of a product and its retail price. the difference between the price paid by consumers and the price required of producers. the difference between the price of a product and consumers' valuation of the last unit of the product purchased.

Answers: 2

Answer

Business, 21.06.2019 20:30

What is the difference between a public and a private corporation?

Answers: 1

Answer

Business, 22.06.2019 01:00

Data pertaining to the current position of forte company are as follows: cash $437,500 marketable securities 170,000 accounts and notes receivable (net) 320,000 inventories 700,000 prepaid expenses 42,000 accounts payable 240,000 notes payable (short-term) 250,000 accrued expenses 310,000 required: 1. compute (a) the working capital, (b) the current ratio, and (c) the quick ratio. round ratios to one decimal place. 2. compute the working capital, the current ratio, and the quick ratio after each of the following transactions, and record the results in the appropriate columns of the table provided. consider each transaction separately and assume that only that transaction affects the data given. round to one decimal place. a. sold marketable securities at no gain or loss, 75,000. b. paid accounts payable, 135,000. c. purchased goods on account, 100,000. d. paid notes payable, 105,000. e. declared a cash dividend, 125,000. f. declared a common stock dividend on common stock, 45,000. g. borrowed cash from bank on a long-term note, 205,000. h. received cash on account, 130,000. i. issued additional shares of stock for cash, 635,000. j. paid cash for prepaid expenses, 15,000.

Answers: 3

Answer

Business, 22.06.2019 08:30

The production manager of rordan corporation has submitted the following quarterly production forecast for the upcoming fiscal year: 1st quarter 2nd quarter 3rd quarter 4th quarter units to be produced 10,800 8,500 7,100 11,200 each unit requires 0.25 direct labor-hours, and direct laborers are paid $20.00 per hour. required: 1. prepare the company’s direct labor budget for the upcoming fiscal year. assume that the direct labor workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced. 2. prepare the company’s direct labor budget for the upcoming fiscal year, assuming that the direct labor workforce is not adjusted each quarter. instead, assume that the company’s direct labor workforce consists of permanent employees who are guaranteed to be paid for at least 2,500 hours of work each quarter. if the number of required direct labor-hours is less than this number, the workers are paid for 2,500 hours anyway. any hours worked in excess of 2,500 hours in a quarter are paid at the rate of 1.5 times the normal hourly rate for direct labor.

Answers: 2

Answer

You know the right answer?

Finding a present value is the reverse of finding a future value.

is the process of calc...

Questions