Calculate the real cash flows on the 7 percent U.S. Treasury bond (see Section 3.5) assuming annual
Question:
Calculate the real cash flows on the 7 percent U.S. Treasury bond (see Section 3.5) assuming annual interest payments and an inflation rate of 2 percent. Now show that by discounting these real cash flows at the real interest rate you get the same PV that you get when you discount the nominal cash flows at the nominal interest rate.
Step by Step Answer:
The 7 percent US Treasury bond see text Section 35 matures ...View the full answer
Principles of Corporate Finance
ISBN: 978-0072869460
7th edition
Authors: Richard A. Brealey, Stewart C. Myers
Related Video
The present value of future cash flows is calculated to determine the value today of a stream of future cash flows. It is calculated by discounting the future cash flows to their present value using a discount rate. The discount rate reflects the time value of money and the risk of the cash flows. It is important because it helps in making investment decisions, capital budgeting, loan decision making, and financial planning. By discounting future cash flows to their present value using a discount rate, it takes into account the time value of money and the risk associated with the cash flows. This allows investors, lenders, and financial planners to evaluate the viability of potential investments, projects, or loan applications, and to estimate the future value of investments or savings. calculating the present value of future cash flows is important in making investment decisions, capital budgeting, loan decision making, and financial planning. It helps to determine the viability of long-term projects, evaluate loan applications, and estimate the future value of investments or savings.
Students also viewed these Corporate Finance questions
-
If an inflation rate of 2 percent, normally distributed with a standard deviation of .333 percent, is assumed, what is the expected NPV of the project in Problem 7, and what is the probability that...
-
Calculate the real interest rate per month if the nominal inflation-adjusted interest rate per year, compounded monthly, is 18% and the inflation rate per month is 0.5%.
-
Discounting a future cash flow at 15 percent results in a lower present value than does discounting the same cash flow at 10 percent. Explain why.
-
Outline suggestions to make observation a useful, reliable requirements elicitation technique.
-
What change in atomic number occurs when a nucleus emits an alpha particle? A beta particle? A gamma ray?
-
A nursing home employs attendants who are needed around the clock. Each attendant is paid the same, regardless of when his or her shift begins. Each shift is 8 consecutive hours. Shifts begin at 6...
-
Blare Company had a return on sales of 6.5 percent and an asset turnover of 2.40. What is Blare's return on assets?
-
The following selected transactions were completed by Air Systems Company during January of the current year. Air Systems Company uses the periodic inventory system. Jan. 2. Purchased $18,200 of...
-
You are analyzing a 1 year corporate bond issued by Bad Management Company. The company has a "CCC" rating by S&P suggesting a probability of default of 19.0%. They have borrowed money on an...
-
Consider the situation in Example 8.7. A new gauge is being evaluated for this process. The same operator measures the same 20 parts twice using the new gauge and obtains the data shown in Table...
-
Derive the formula for a growing (or declining) annuity.
-
The present value of investing in a stock should not depend on how long the investor plans to hold it. Explain why.
-
Suppose the National League team has a probability of \(\frac{3}{5}\) of winning a World Series game and the American League team has a probability of \(\frac{2}{5}\). The series is over as soon as...
-
Chris and Mary are married, but Chris has recently moved out of the family residence and intends to file for a divorce. The parties have one eight year-old son named Max. Chris seeks your advice as...
-
Question: How can the arbitration method solve disputes between two states according to international law?
-
Write a java program to print below pattern? 1234 1234 1234 1 2 3 4
-
Writeajavaprogramtoprintbelow pattern? **** **** **** ****
-
A project costs 100,000 with a planned life of 12 years. The benefits have been forecast to be 15,000 per year. What will be the IRR (to the nearest integer) for this project?
-
During operation a \(100-\mathrm{kg}\) press is subject to the periodic excitations shown. The press is mounted on an elastic foundation of stiffness \(1.6 \times 10^{5} \mathrm{~N} / \mathrm{m}\)...
-
On the basis of the details of the following fixed asset account, indicate the items to be reported on the statement of cashflows: ACCOUNT Land ACCOUNT NO. Balance Date Item Debit Credit Debit Credit...
-
Use the data in Appendix D to calculate the standard cell potential for each of the following reactions. Which reactions will occur spontaneously? (a) H(g) + F2 (g) (b) Cu(s) + Ba+ (aq) 2 H(aq) + 2 F...
-
True or false? a. Most commercial bank loans are made under commitment. b. A line of credit provides the lender with a put option. c. Bank term loans typically have a maturity of several years. d. If...
-
Complete the passage below by selecting the most appropriate terms from the following list: floating charge, syndicated, commercial paper, warehouse receipt, arranger, collateral, commitment fee,...
-
Listed below are some common terms of sale. Can you explain what each means? a. 2/30, net 60. b. 2/5, EOM, net 30. c. COD.
-
Withdrawals increasing at a constant rate of 3 . 1 % are made semi - annually for seven years from an account earning 7 % compounded semi - annually. ( a ) What must be the balance in the account to...
-
Company ZZZ is an all - equity firm with 1 , 0 0 0 , 0 0 0 shares outstanding. Company ZZZ currently has a cash flow of $ 1 0 , 0 0 0 , 0 0 0 USDs and expects future free cash flows of $ 1 0 , 0 0 0...
-
Review the following earnings and deductions and determine where (what box) (or if) they should be reported on the employee's T4. Note it's possible that some items will be recorded in more than one...
Study smarter with the SolutionInn App