Question

please answer all of the following questions

5. Which of the following will decrease the present value of the mixed cash flows for years 1 through 5 of $1,000; $4,000; $9,000; $5,000; and $2,000 respectively given a 10% discount rate? (Choose all that apply - this is an all or nothing problem, if you choose an option that is wrong or do not choose an option thar is correct, your entire answer will be marked wrong). a. Decrease the discount rate by 2%. b. Switch cash flows for years 1 and 5 so that year I is $2,000 and year 5 is $1,000. c. Switch cash flows for years 2 and 4 so that year 2 is $5,000 and year 4 is $4,000. d. Switch cash flows for years 2 and 5 so that year 2 is $2,000 and year 5 is $4,000. e. Switch cash flows for years 3 and I so that year I is $9,000 and year 3 is $1,000. 6. Which of the following banks is offering the BEST rate (assuming that you plan to deposit $10,000 in the account today and leave the money in the account for 25 years)? Bank Number of Compounding Periods Per Year < Nominal Rate 16.000% 15.700% 15.500% 15.350% 15.250% 12 365 Continuous a. Bank A which offers a rate of 16.000% with semi-annual compounding. b. Bank B which offers a rate of 15.700% With quarterly compounding. c. Bank C which offers a rate of 15.500% With monthly compounding d. Bank D which offers a rate of 15.350% with daily compounding e. Bank E which offers a rate of 15.250% with continuous compounding,

Answer 1

5)

Present value of future cash flow will be less than the actual future cash flow. This must be considered while making decision.

Hence, correct option is D.

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