Which of the following statements is false?
a. If the discount rate (or interest) rate is positive, the future value of an unexpected 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 than its future value.
d. Disregarding risk, if the present value of a sum is equal to it future value, either k= 0 ot t= 0.
e. Each of the above statements is true

Solution Summary

The present and future value for a discount rate is discussed.

Jack Hammer invests in a stock that will pay dividends of $2.00 at the end of the first year; $2.20 at the end of the second year; and $2.40 at the end of the third year. Also, he believes that at the end of the third year he will be able to sell the stock for $33. What is the presentvalue of all future benefits if a discount

37. Given some amount to be received several years in the future, if the interest rate increases, the presentvalue of the future amount will be (pick the best answer)
1 higher
2 lower
3 stay the same
4 cannot tell
5 variable

Compute the presentvalue of a $100 cash flow for the following combinations of discount rates and times:
a. r = 8 percent. t = 10 years.
b. r = 8 percent. t = 20 years.
c. r = 4 percent. t = 10 years.
d. r = 4 percent. t = 20 years.

Congratulations! You have just won the lottery!
However, the lottery bureau has just informed you that you can take your winnings in one of two ways. Choice X pays $1,000,000. Choice Y pays $1,750,000 at the end of five years from now.
Using a discount rate of 5 percent, based on presentvalues, which would you choose?

Use equations and a financial calculator to find the following values. See the hint for problems 2-1
a. An initial 500 compounded for 10years at 6 percent
b. An initial 500 compounded for 10 years at 12 percent
c. The presentvalue of $500 due in 10 years at a 6 percent discount rate.
d. The presentvalue of $1,552.90 due

Show the formula used in the following questions in detail
1)
a. What is the futurevalue of $4,000 invested at 6% for 22 years with annual compounding?
b. What is the futurevalue of $4,000 invested at 6% for 22 years with monthly compounding?
c. What is the futurevalue of $4,000 invested at 6% for 22 years with cont

(Present and futurevalues) Assume that you are starting with an investment of $10,000.
a. What is the futurevalue of the investment after one year if it earns 10% per year? What is the presentvalue of this futurevalue discounted at 10%?
b. What is the futurevalue of the investment after one year if it earns 20% per ye

PV versus FV
4. If the "discount" (or interest) rate is positive, the presentvalue of an expected series of payments will always exceed the futurevalue of the same series.
a. True
b. False
The discounting is the process of finding the PV of a future cash flow and is the reciprocal, or reverse of compounding.
5.

1. An increase in the discount rate:
A) will increase the presentvalue of future cash flows.
B) will have no effect on net presentvalue.
C) will reduce the presentvalue of future cash flows.
D) is one method of compensating for reduced risk.
2. Suppose an investment has cash inflows of R dollars at the end of