Why is the present value of an amount to be received

Assignment Help Finance Basics
Reference no: EM13294458

Why is the present value of an amount to be received (paid) in the future less than the future amount?

a. Deflation causes investors to lose purchasing power when their dollars are invested for greater than one year.
b. Investors have the opportunity to earn positive rates of return, so any amount invested today should grow to a larger amount in the future.
c. Investments generally are not as good as those who sell them suggest, so investors usually are not willing to pay full face value for such investments, thus the price is discounted.
d. Because investors are taxed on the income received from investments they never will buy an investment for the amount expected to be received in the future.
e. None of the above is a correct answer.

 

Reference no: EM13294458

Questions Cloud

What is the average expected inflation rate over the 5 year : Assume that at the beginning of 2008, the rate of inflation expected for 2008 is 4 percent; for 2009 it is expected to be 5 percent; for 2010 it is expected to be 7 percent; and for 2011and every year thereafter, it is expected to settle at 4 perc..
Explain sodium dihydrogenphosphate : A phosphate buffer solution (25.00 mL sample) used for a growth medium was titrated with 0.1000 M hydrochloric acid. The components of the buffer were sodium monohydrogenphosphate and sodium dihydrogenphosphate
Find the magnitude of the necessary lifting force : A jet flying at 107 m/s banks to make a horizontal circular turn. The radius of the turn is 3810 m, Calculate the magnitude of the necessary lifting force
How much time is required for the bullet to reach the target : A bullet is fired horizontally with an initial velocity of 865 m/s at a target located 150 m from the rifle. How much time is required for the bullet to reach the target
Why is the present value of an amount to be received : Why is the present value of an amount to be received (paid) in the future less than the future amount?
The henderson-hasselbalch equation is to calculate the ph : The Henderson-Hasselbalch equation is used to calculate the pH of a weak base, but not the pH of a weak acid.
How can the costs of preferred stock and debt be estimated : Assuming that there are no corporate income taxes, how can the costs of preferred stock and debt be estimated?
What would be the aftertax cost of the call premium : What would be the aftertax cost of the call premium at the end of year 13 (in dollar value)? (Omit the "tiny_mce_markerquot; sign in your response.)
How to calculate the value of the equilibrium constant : consider the following reaction So2Cl2 + Cl2. A reaction mixture is being made containing an initial So2Cl2 of 2.3 x 10 -2. At equilibrium Cl2 = 1.0 x 10 -2. Calculate the value of the equilibrium constant

Reviews

Write a Review

Finance Basics Questions & Answers

  Differences between secured and unsecured creditors

Determine the principal differences between Secured Creditors, Unsecured Creditors, Preferred Stockholders and Common Stockholders? During a partial or complete liquidation, what is the priority of asset distribution?

  Calculate the investor realized percentage holding period

She expects the price of the Venus shares to fall to about $38 over the next year. Calculate the investor's realized percentage holding period return.

  Determine the real risk-free rate of return

You read in the Wall Street Journal that thirty day T-bills are currently yielding 5.55. your brother-in-law, a broker at Safe and Sound Securities, has given you following estimates of current interest rate premiums;

  What are operating profits and invested capital expected

what are operating profits and invested capital expected to be next year? What are two critical operating assumptions (identify one for profits, and one for capital) embedded in this forecast method?

  Define what is the required rate of return on a stock

Assume that the risk-free rate is 6 percent and the expected return on the market is 13 percent. What is the required rate of return on a stock that has a beta of 0.7?

  What is kiwi net income

Kiwi Corporation has $3,550 in sales, $1,200 in CGS, $250 in Depreciation. The firm marketing effort totaled $500 and Kiwi's interest expense is $70. Assume a 30% tax liability, what is Kiwi's net income?

  Creating appropriate butterfly spread

Three-month European call options on BCE stock, with strike prices of= $30, $40 and $50, cost $7, $3 , and $2, respectively. Create an appropriate butterfly spread.

  Calculate weights of debt and equity

Please calculate the weights of debt and equity for British Petroleum. For equity you can use the market value of stock (number of shares times the current stock price).

  What is the sustainable growth rate

Last year Lakesha's Lounge Furniture Corporation had an ROE of 12.5% and a dividend payout ratio of 20%. What is the sustainable growth rate? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

  Explain the weakness in lehman''s governance practices

Identify and explain the weakness in Lehman's governance practices.

  What is the weighted average cost of capital at the optimal

what is the firm's optimal capital structure, and what is the weighted average cost of capital at the optimal structure?

  Which of the following is most likely to occur

Assume that the risk-free rate remains constant, but the market risk premium declines. Which of the following is most likely to occur?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd