Question

Which of the following statements is INCORRECT?
A) In general, money today is worth more than money in one year.
B) We define the risk-free interest rate, rf for a given period as the interest rate at which money can be borrowed or lent without risk over that period.
C) We refer to (1 - rf) as the interest rate factor for risk-free cash flows.
D) For most financial decisions, costs and benefits occur at different points in time.

Suppose you have $1000 today and the risk-free rate of interest (rf) is 3.5%. The equivalent value in one year is closest to:
A) $965.00 today.
B) $966.18 today.
C) $1000.00 today.
D) $1035.00 today.

When we express the value of a cash flow or series of cash flows in terms of dollars today, we call it the ________ of the investment. If we express it in terms of dollars in the future, we call it the ________.
A) present value; future value
B) future value; present value
C) ordinary annuity; annuity due
D) discount factor; discount rate

Answer 1

The incorrect Statement is

C) We refer to (1 - rf) as the interest rate factor for risk-free cash flows.

We refer (1+rf) as the interest rate factor

Rest all statements are true

Suppose you have $1000 today and the risk-free rate of interest (rf) is 3.5%. The equivalent value in one year is closest to:

Value in one year = 1000/(1+3.5%)

= $966.18

i.e. B.

A)Present value, future value