Present Value ( Choose the best answer)

1.Which of the following is true about finding the present value of cash flows?

a. Finding the present value cash flows tells you how much you need to invest today so that it grows to a given future amount at a specified rate of return.

b. Finding the present value cash flows tells you what a cash flow will be worth in future years at a specified rate of return.

2. Which of the following investment that pay $6500 in four years will have a higher price today? Assume that both investments have equal risk.

a. The security that earns an interest rate of 11.50%

b. The security that earns an interest rate of 17.25%

3. Earic wants to invest in government securities that promise to pay $1000 at a maturity. The opportunity cost (interest rate) of holding the security is 4.00% . Assuming that both investment have equal risk and Earic's investment time horizon is flexible , which of the following investment option is priced lower?

a. An investment that matures in four years

b. An investment that matures in three years

4. Which of the following is true about Present value calculations?

a. Other things remaining equal, the present value of future cash flow decrease if the discount rate increases.

b. Other things remaining equal, the present value of future cash flow increases if the discount rate increases.