Wednesday, February 16, 2011

chapter 5 questions

Chapter 5 question

1. what is time value of money?
A. concepts developed around the argument that capital is entitled to a return. Used to discount and compound income-producing assets.

b. a specific type of revenue stream characterized by equal periodic payments over its life.

c. that rate of return that exactly equates the investment outflows with the investment inflows once we consider the timing of the cash flows.

d.the value that an income producing asset will enjoy at some specified time in the future. The process of determining future value is called compounding.

2. What is compounding?

a.that rate of return that exactly equates the investment outflows with the investment inflows once we consider the timing of the cash flows.

b. a specific type of revenue stream characterized by equal periodic payments over its life.

c. determining the present values of an income stream

D.the process of determining the future value of an income stream by applying appropriate time value of money concepts.

3. What is an annuity?

A. a specific type of revenue stream characterized by equal periodic payments over its life.

b. that rate of return that exactly equates the investment outflows with the investment inflows once we consider the timing of the cash flows.

c.determining the present values of an income stream

d.concepts developed around the argument that capital is entitled to a return. Used to discount and compound income-producing assets.


True/ False

1. Discounting is determining the present values of an income stream.

A- True


2. future value is the value that an income producing asset will enjoy at some specified time in the future. The process of determining future value is called compounding.

A- True

3. is net present value the discounted value of an income producing asset considering both cash inflows to the asset owner and cash outflows from the assets owner.

A-True

4.Internal rate of return is a specific type of revenue stream characterized by equal periodic payments over its life

A- False

Correct answer-that rate of return that exactly equates the investment outflows with the investment inflows once we consider the timing of the cash flows.

5. Time value of money is concepts developed around the argument that capital is entitled to a return. Used to discount and compound income-producing assets.

A- True

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