Question

Under what conditions (ceteris paribus) is the present value of multiple cash flows going to raise?(5...

Under what conditions (ceteris paribus) is the present value of multiple cash flows going to raise?(5 Points)

In case the discount rate is going to raise.

In case the risk of the multiple cash flow is going to drop.

In case the risk free rate is going to drop.

In case the inflation is going to raise.

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Answer #1

The formula to calculate the present value of multiple cash flows is,

The present value will increase if the numerator increases or the denominator decreases.

If the risk-free rate drops, then the denominator will decrease and the present value of cash flows will increase. All the other factors will decrease the PV of cash flows,

Hence the answer is option iii) In case the risk-free rate is going to drop.

If you have any doubts please let me know in the comments. Please give a positive rating if the answer is helpful to you. Thanks.

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