Question

Pays < > - Sa + | Assume the appropriate discount rate is 5% per period. The discount factor for a cash flow 4 periods from today is closest to: a) 0.7830 b) 0.8000 C10.8203 d) 0.8227 e) 0.8335 6. You Invest $100 in a stock today (T=0). At the end of year one, the stock is down 50%. What return would the stock have to have earn in the second year for you to break even (i.e. to have $100 at the end of year two)? a) 25% b) 50% c) 7596 d) 100% c) 125% Use the information below to help answer questions 9 10 Today, you deposit $1,234 of cash in a savings account that earns 6% in annualized interest. One interest payment is received at the end of every year. You make no other deposits or withdrawals 7. In five years, the amount of interest on interest you have earned in your savings account is closest to: a) $540 b) 5541 cl $542 d) 5543 e) $544 -- ... L-... .-- ....II :1 1-.-

Answer 1

Answer to Q#5 (First question in the list): Option-(d): 0.8227 Reason: Discount factor for a cash flow 'n' periods from today = 1/(1 + Discount rate)". Discount rate 5% n = Discount factor for a cash flow 4 periods from today 0.8227 {Discount factor = 1/(1+5%)^4 = 1/(1+0.05)^4 = 1/(1.05^4) = 0.8227}