1. what is the percent change in the PV of $100 to do in one year when the interest rate changes from 5% to 10% move the sliders to 10%?
2. what is the percentage change in the PV of $100 due in 20 years when the interest rate cost of capital changes from 5% to 10%?
3. The impact of interest rate changes in the PV of $100 due in 20 years compared to the PV have $100 due one year are?
4. if the interest rate is less than 5%, then the PV's for both the one-year and the 20 year investments.
Conceptual Overview: Explore how time and the cost of capital affects the net present values of two alternative investments. The equations below show the discounted or present value of cash hlows ether one yeat or twenty years in the future. The first equation in each set or three shows the discounted value when the interest rate (or cost or capital equals 5%. The second equation in each set of three shows the discounted value for an interest rate inat is controlled by the silider The third equation compares the two discounted values change the silider and observe whether the discounted value or the one-year cash now changes more or less quickly than the discounted value of the twenty-year cash fiow. Year 1 Cash Flow PV of $100 due in 1 year @ r=5.0%:1.051$100=$95.24 PV of $100 due in 1 year @r=5.0%:1.0501$100=$95.24 Percentage change due to different r=$95.24$95.24595.24=0.0% Year 1 Cash Flow PV of $100 due in 1 year @ r=5.0%:1.051$100=$95.24 PV of $100 due in 1 year @r=5.0%:1.0501$100=$95.24 Percentage change due to different r=$95.24$95.24$95.24=0.0% Year 20 Cash Flow PV of $100 due in 20 years @r=5.0%:1.0520$100=$37.69 PV of $100 due in 20 years @ r=5.0%:1.05020$100=$37.69 Percentage change due to different r=$37.69$37.69$37.69=0.0% PV of $100 due in 1 year @ r=5.0%:1.0501$100=$95.24 Percentage change due to different r=$95.24$95.24$95.24=0.0% Year 20 Cash Flow PV of $100 due in 20 years @ r=5.0%:1.05020$100=$37.69 PV of $100 due in 20 years @r=5.0%:1.05020$100=$37.69 Percentage change due to different r=$37.69$37.69$37.69=0.0% 1. What is the percentage change in the PV of $100 due in 1 year when the interest rate changes from 5% to 10% ? (Move the slider to 10%.) a. Decreases by 60.6% b. Decreases by 4,33% c. Decreases by 4.5% d. Does not change e. Increases by 4.5% f. Increases by 60.6% 2. What is the percentage change in the PV of $100 due in 20 years when the interest rate (cost of capital) changes from 5% to 10% ? a. Decreases by 60% b. Decreases by 22:83% c. Does not change d. Increases by 22.83% e. increases by 60,6% 3. The impact of interest rate changes in the PV of $100 due in 20 years compared to the PV of $100 due in one year are: a. smaller because interest rate changes have a greater impact on the near-term cash flows than distant cash flows. b. the same because the cash flow is the same. c. greater because interest rate changes have a greater impact on distant cash flows than near-term cash flows. d. sometimes less and sometmes more depending on the interest rate. 4. If the interest rate is less than 5%, then the PVS for both the one-year and 20 -year investments: a. Decrease because the interest rate is lower. b. Increase because the investments are discounted at a lower rate. c. Do not change becasue the investment amount is the same. d. Might either increase or decrease. Conceptual Overview: Explore how time and the cost of capital affects the net present values of two alternative investments. The equations below show the discounted or present value of cash hlows ether one yeat or twenty years in the future. The first equation in each set or three shows the discounted value when the interest rate (or cost or capital equals 5%. The second equation in each set of three shows the discounted value for an interest rate inat is controlled by the silider The third equation compares the two discounted values change the silider and observe whether the discounted value or the one-year cash now changes more or less quickly than the discounted value of the twenty-year cash fiow. Year 1 Cash Flow PV of $100 due in 1 year @ r=5.0%:1.051$100=$95.24 PV of $100 due in 1 year @r=5.0%:1.0501$100=$95.24 Percentage change due to different r=$95.24$95.24595.24=0.0% Year 1 Cash Flow PV of $100 due in 1 year @ r=5.0%:1.051$100=$95.24 PV of $100 due in 1 year @r=5.0%:1.0501$100=$95.24 Percentage change due to different r=$95.24$95.24$95.24=0.0% Year 20 Cash Flow PV of $100 due in 20 years @r=5.0%:1.0520$100=$37.69 PV of $100 due in 20 years @ r=5.0%:1.05020$100=$37.69 Percentage change due to different r=$37.69$37.69$37.69=0.0% PV of $100 due in 1 year @ r=5.0%:1.0501$100=$95.24 Percentage change due to different r=$95.24$95.24$95.24=0.0% Year 20 Cash Flow PV of $100 due in 20 years @ r=5.0%:1.05020$100=$37.69 PV of $100 due in 20 years @r=5.0%:1.05020$100=$37.69 Percentage change due to different r=$37.69$37.69$37.69=0.0% 1. What is the percentage change in the PV of $100 due in 1 year when the interest rate changes from 5% to 10% ? (Move the slider to 10%.) a. Decreases by 60.6% b. Decreases by 4,33% c. Decreases by 4.5% d. Does not change e. Increases by 4.5% f. Increases by 60.6% 2. What is the percentage change in the PV of $100 due in 20 years when the interest rate (cost of capital) changes from 5% to 10% ? a. Decreases by 60% b. Decreases by 22:83% c. Does not change d. Increases by 22.83% e. increases by 60,6% 3. The impact of interest rate changes in the PV of $100 due in 20 years compared to the PV of $100 due in one year are: a. smaller because interest rate changes have a greater impact on the near-term cash flows than distant cash flows. b. the same because the cash flow is the same. c. greater because interest rate changes have a greater impact on distant cash flows than near-term cash flows. d. sometimes less and sometmes more depending on the interest rate. 4. If the interest rate is less than 5%, then the PVS for both the one-year and 20 -year investments: a. Decrease because the interest rate is lower. b. Increase because the investments are discounted at a lower rate. c. Do not change becasue the investment amount is the same. d. Might either increase or decrease