Question

Suppose you are given a positive discount (or interest/compound) rate. If you calculated the PV (present value) of a series of equal cash flows, it will always exceed the FV (future value) of the same series of cash flows. True or False?

Answer #1

The given statement is false.

Because the future value = Present value x (1 + rate )^n

and Present value = future value / (1 + rate )^n

where n is the number of period.

From the above equation we can clearly see that the future value is calculated by multiplying the compounding factor and present value is calculated by dividing the future value with compounding factor. So future value will always be greater that the present value whether it is a case of equal cash flows or not.

True or False
1. Suppose you are given a positive discount (or
interest/compound) rate. If you calculated the PV (present value)
of a series of equal cash flows, it will always exceed the FV
(future value) of the same series of cash flows.
2. All else equal, the PV (present value) of an annual ordinary
annuity (i.e cash flows only happen at end of each year) increases
as the frequency of compounding (# of periods per year)
increases.
3. It...

Which of the following statements is false?
a. If the discount (or interest) rate is positive, the future
value of an expected series of payments will always exceed the
present value of the same series.
b. To increase present consumption beyond present income
normally requires either the payment of interest or else an
opportunity cost of interest foregone.
c. Disregarding risk, if money has time value, it is impossible
for the present value of a given sum to be greater...

If $12,000 is borrowed at 7.8% interest to be paid back over
five years, the third year’s interest payment is $775.82 and
principal amount of the same year is $2,386.52. True / False
6. Investments in infrastructure assets that are to be
constructed are referred to as greenfield investments. In general,
investing in greenfield investments provides stable cash flows and
relatively high yields, but offers little potential for growth.
True / False
7. If the discount (or interest) rate is...

(T/F) The higher the discount rate or interest rate the lower
my PV (Present Value)
(T/F) The further out I receive a FV, the higher the PV
(T/F) The more time I have to invest the lower my FV (future
value)
(T/F) The higher the interest rate the higher the FV
(T/F) The more money I invest the higher FV
What is the FV of $50,000 invested today in 9 years if I can
earn 5%?
What is the FV...

1. The future value of a present sum increases as either the
discount rate or the number of periods per year increases, other
things held constant.
True or False
2.It is always desirable to have a higher compounding frequency,
regardless of the initial investment or the time horizon.
True or False
3.A perpetuity is a level stream of evenly spaced cash flows
that never ends.
True or False

. Provide the structure of the Excel commands
to calculate pv(present value), fv(future value), rate(interest
rate), pmt(payment), nper(number of periods).

11.a) Find the PV of the following stream of cash
flows, if the discount rate is 7%:
Years Cash
Flow
1-15 $ 12,000
16-35 $ 18,000
36-40 $ 20,000
b) Following up on the above stream, what would the
PV be if the 39th cash flow was missing?
c) What would the FV of part (a) be? At the same 7%
rate.
d) what would the FV be if the last...

Calculate the present value of the given stream of cash flows
using the given discount rate. The present value you find is
between $24,000 and $24,100.
time
cash flows
discount rate
0
5%
1
$1,000
2
$1,500
3
$2,000
4
$2,500
5
$3,000
6
$3,500
7
$4,000
8
$4,500
9
$5,000
10
$5,500

The
i thermal rate of return is:
The discount rate that makes the net present value of a
project equal to the initial cash outlay.
Equivalent to the discount rate that makes the net present
value equal to one.
Tedious to compute without the use of either a Financial
calculator or a computer.
Highly dependent upon the current interest rates offered in
the marketplace.
A better methodology than net present value when dealing with
unconventional cash flows.

Based on 15% compound interest rate and the following cash
flows, present the answer in the form of a single table.
What is the overall present worth
What is the present worth for each year?
What is the overall future worth?
What is the future worth for each year?
End of Year (EOY)
Cash Flow (CF)
0
-$25,000
1
$12,500
2
$10,000
3
$7,500
4
$10,000
5
$12,500

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