Question

Which of the following is a synonym for interest rate? The required rate of return The...

Which of the following is a synonym for interest rate?

The required rate of return

The cost of capital

The discount rate

The opportunity cost

All of the above

If you are calculating how much you would pay at most for an investment that promises a payment of $1,000,000, 3 years from today, you are

  • Spending
  • Compounding
  • Discounting
  • Analyzing
  • None of the above
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Answer #1

The discount rate is the interest rate that is used to calculate the present value of future cash flows.

This rate is used for discounting the future cash and calculating their present values.

The correct option is option C.

Here, we are calculating the present value of a future stream of cash flows, so we are discounting the cash flows.

So, the correct option is option C.

We will be be calculating the present value by discounting ,

$1,000,000/(1+ discount rate)^3

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