4. Present valueFinding a present value is the reverse of finding a future value.Which of the following is true about finding the present value of cash flows?O Finding the present value of cash flows tells you how much you need to invest today so that it grows to a given future amount at aspecified rate of return.O Finding the present value of cash flows tells you what a cash flow will be worth in future years at a specified rate of return.Which of the following investments that pay will $5,000 in 12 years will have a higher price today?O The security that earns an interest rate of 8.25%.O The security that earns an interest rate of 5.50%.Eric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest rate) of holding the security is13.80%. Assuming that both investments have equal risk and Eric's investment time horizon is flexible, which of the following investment options willexhibit the lower price?O An investment that matures in ten yearsO An investment that matures in eleven yearsWhich 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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present value is the

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

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ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter4: Managing Your Cash And Savings

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Question

4. Present value
Finding a present value is the reverse of finding a future value.
Which of the following is true about finding the present value of cash flows?
O Finding the present value of cash flows tells you how much you need to invest today so that it grows to a given future amount at a
specified rate of return.
O Finding the present value of cash flows tells you what a cash flow will be worth in future years at a specified rate of return.
Which of the following investments that pay will $5,000 in 12 years will have a higher price today?
O The security that earns an interest rate of 8.25%.
O The security that earns an interest rate of 5.50%.
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 ten years
O An investment that matures in eleven 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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