Question

Back to Assignment Attempts Keep the Highest: /4 Attention: Due to a bug in Google Chrome, this page may not function correctly. Click here to learn more. 3. 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. OFinding 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 $19,000 in eight 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%. wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest rate) of holding the security is 9.60%. Assuming that both investments have equal risk and horizon is flexible, which of the following investment options will exchibit the lower price? Eric Eric's investment time O An investment that matures in four years O An investment that matures in three years Which of the following is true about present value calculations? Other things remaining equal, the present value of a future cash flow decreases if the discount rate increases. O Other things remaining equal, the present value of a future cash flow increases if the discount rate increases. 3 3 343 2004-2016Aa All nights reserved Grade it Now as noted All rights

Please answer ASAP (correctly)

Answer 1

3. (a) (i)

(b) (i)

PV = 19000*PVIF(5.5%,8) = 19000*0.6516 = 12380.4

PV = 19000*PVIFA(5.5%,8) = 19000*0.5304 = 10076.98

(c) (i) An investment that matures in four year

PV = 1000/PVIFA(9.60%,3) = 1000/2.5045 =399.29

PV = 1000/PVIFA(9.60%,4) = 1000/3.198 = 312.74

(d) (i) An investment that matures in four years will have lower price.

PV = 1000*PVIF(9.6%,3) = 1000*0.7596 = 759.6

PV = 1000*PVIF(9.6%,4) = 1000*0.6930 = 693.03

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