Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
expand_more
expand_more
format_list_bulleted
Concept explainers
Textbook Question
Chapter 3, Problem 6P
Suppose the risk-free interest rate is 4%.
- a. Having $200 today is equivalent to having what amount in one year?
- b. Having $200 in one year is equivalent to having what amount today?
- c. Which would you prefer, $200 today or $200 in one year? Does your answer depend on when you need the money? Why or why not?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Suppose the risk-free interest rate is 4.6%.
Having $600 today is equivalent to having what amount in one year? (Round to the nearestcent.)
Having $600 in one year is equivalent to having what amount today? (Round to the nearestcent.)
Which would you prefer, $600 today or $600 in one year? Does your answer depend on when you need the money? Why or why not? (Round to the nearestcent.)
Suppose the risk - free interest rate is 4.2%.a. Having $200 today is equivalent to having what amount in one year?b. Having $200 in one year is equivalent to having what amount today?c. Which would you prefer, $200 today or $200 in one year? Does your answer depend on when you need the money? Why or why not?a. Having $200 today is equivalent to having what amount in one year?Having $200 today is equivalent to having Sin one year. (Round to the nearest cent.)
Suppose the interest rate is 3.6%
b. Having $650 in one year is equivalent to having what amount today?
c. Which would you prefer, $650 today or $650 in one year?
Does your answer depend on when you need the money? Why or why not?
**round to the nearest cent**
Chapter 3 Solutions
Corporate Finance
Ch. 3.1 - Prob. 1CCCh. 3.1 - If crude oil trades in a competitive market, would...Ch. 3.2 - How do you compare costs at different points in...Ch. 3.2 - Prob. 2CCCh. 3.3 - What is the NPV decision rule?Ch. 3.3 - Why doesnt the NPV decision rule depend on the...Ch. 3.4 - Prob. 1CCCh. 3.4 - Prob. 2CCCh. 3.5 - If a firm makes an investment that has a positive...Ch. 3.5 - Prob. 2CC
Ch. 3.5 - Prob. 3CCCh. 3.A - The table here shows the no-arbitrage prices of...Ch. 3.A - Suppose security Chas a payoff of 600 when the...Ch. 3.A - Prob. A.3PCh. 3.A - Prob. A.4PCh. 3.A - Prob. A.5PCh. 3.A - Consider a portfolio of two securities: one share...Ch. 3.A2 - Why does the expected return of a risky security...Ch. 3.A2 - Prob. 2CCCh. 3.A3 - Prob. 1CCCh. 3.A3 - Prob. 2CCCh. 3 - Honda Motor Company is considering offering a 2000...Ch. 3 - You are an international shrimp trader. A food...Ch. 3 - Prob. 3PCh. 3 - Prob. 4PCh. 3 - You have decided to take your daughter skiing in...Ch. 3 - Suppose the risk-free interest rate is 4%. a....Ch. 3 - You have an investment opportunity in Japan. It...Ch. 3 - Your firm has a risk-free investment opportunity...Ch. 3 - You run a construction firm. You have just won a...Ch. 3 - Your firm has identified three potential...Ch. 3 - Your computer manufacturing firm must purchase...Ch. 3 - Prob. 12PCh. 3 - Prob. 13PCh. 3 - Prob. 14PCh. 3 - Prob. 15PCh. 3 - An Exchange-Traded Fund (ETF) is a security that...Ch. 3 - Consider two securities that pay risk-free cash...Ch. 3 - Prob. 18P
Additional Business Textbook Solutions
Find more solutions based on key concepts
(Preferred stock valuation) What is the value of a preferred stock when the dividend rate is 16 percent on a $1...
Foundations Of Finance
Financial statement analysis. Introduction: Financial ratio analysis: Financial ratio analysis is a tool of fin...
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
The cost of debt, equity and the weighted average capital cost are the financial leverages of the firm. The opt...
Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
The executive vice-president in charge of finance believes the price will not fall in proportion to the size of...
Foundations of Finance (9th Edition) (Pearson Series in Finance)
Loder Company had a good year, and recorded a large gain on the sale of a discontinued business segment. Bates ...
Financial Accounting
With good internal controls, the person who handles cash can also
Learning Objective 1
account for cash paym...
Horngren's Accounting (11th Edition)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- You are considering the choice between investing £50,000 in a conventional 1-year financial asset such as (Certificate of Deposit) offering an interest rate of 5% and a 1-year “InflationPlus” offering 1.5% per year plus the rate of inflation. (a) Which is the safer investment and why? Which offers the higher expected return and why? If you expect the rate of inflation to be 3% over the next year, which is the better investment? Explain. If we observe a risk-free real rate of 5% per year and a risk-free real rate of 1.5% on inflation indexed bonds, can we infer that the market’s expected rate of inflation is 3.5% per year?arrow_forwardWhat is the present value for a future value of FV=$500,000 at time t=36 if the interest rate is r=0.05 (e.g., r=5%)? What is the interest rate “r” if PV=$100 and the FV=$350 in year t=12? What is the interest rate “r” if PV=$1250 and the FV=$2150 in year t=10? How long will it take to double your investment if the interest rate is r=0.06 (r=6%)? How long will it take to increase your investment by 2.5 times if the interest rate is r=0.14 (r=14%)? Which is the better option if the interest rate is r=0.10 (r=10%)? Show all work used to arrive at your answer. a. Option I: Receive $1000 today at time t=0. b. Option II: Receive $1615 at time t=5.10) Which is the better option if the interest rate is r=0.07 (r=7%)? Show all work used to arrive at your answer. a. Option I: Receive $510 today at time t=0. b. Option II: Receive $1000 at time t=10.arrow_forwardThe amount of money originally put into an investment is known as the present value P of the investment. For example, if you buy a $50 U.S. Savings Bond that matures in 10 years, the present value of the investment is the amount of money you have to pay for the bond today. The value of the investment at some future time is known as the future value F. Thus, if you buy the savings bond mentioned above, its future value is $50. If the investment pays an interest rate of r (as a decimal) compounded yearly, and if we know the future value F for t years in the future, then the present value P = P(F, r, t), the amount we have to pay today, can be calculated using the formula below. P = F × 1 (1 + r)t We measure F and P in dollars. The term 1/(1 + r)t is known as the present value factor, or the discount rate, so the formula above can also be written as the following. P = F × discount rate (a) Explain what information the function P(F, r, t) gives you. The function…arrow_forward
- Suppose you have $10,000 and a choice of two alternatives: A) put the money in a savings account that pays 4% per year, and B) buy a stock that has a 50% chance to gain 15% in value after 1 year, and a 50% chance to lose 5%. What will be the expected return for either alternative, and which one would you choose? Why?arrow_forwardSuppose the interest rate is3.6%. a. Having $650 today is equivalent to having what amount in one year? b. Having $650 in one year is equivalent to having what amount today? c. Which would you prefer, $650 today or $650 in one year? Does your answer depend on when you need the money? Why or why not? a. Having $650 today is equivalent to having what amount in one year? It is equivalent to $____. (Round to the nearest cent.)arrow_forwardYou are researching interest rates and their forecasts. Your research provides you with the following: 1-year rate = 6% 2-year rate = 6.125% 3-year rate = 8.5% 1-year rate, 2 years from now = 6.5% Assuming you can borrow $1 million, can you use this interest rate information to earn some risk-free profit. if yes, compute the profit. Show detailed workings. Assume that the pure expectations theory applies.arrow_forward
- a) You invest 155 000 TL for a year. At the end the year, you have 174 375 TL net in your account. If the inflation realizes at %10 fot this year, calculate real rate of return? Can real interest rates be negative? Give a simple example?arrow_forwardIf you are promised a nominal return of 16%, on a one-year investment, and you expect the rate of inflation to be 2%, what real rate do you expect to earn? Use the Fisher equation, NOT the approximation.arrow_forwardAssume you are investing $10,000 today for a given amount of time at a given interest rate. What would DECREASE the total amount of money at the end of the investment period?arrow_forward
- Suppose the interest rate on a 3-year Treasury Note is 1.25%, and 5-year Notes are yielding a 3.50%. Based on the expectations theory, what does the market believe that 2 year treasuries will be yielding 3 years from now?arrow_forwardAssume you invest $1 000 at the end of this year, at the end of the second year, and at the end of the third year. How much will you have at the end of the fourth year if interest rates are 5% p.a.? Select one: a. $3,405.54 b. $3,310.12 c. $3,215.41 d. $3,100,21arrow_forwardSuppose that a risk free investment will make three future payme Suppose that a risk-free investment will make three future payments of $100 in one year, $100 in two years, and $100 in three years. If the Federal Reserve has set the risk-free interest rate at 8 percent, what is the proper current price of this investment? What if the Federal Reserve raises the risk-free interest rate to 10 percent? Suppose that a risk free investment will make three future paymearrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
Portfolio return, variance, standard deviation; Author: MyFinanceTeacher;https://www.youtube.com/watch?v=RWT0kx36vZE;License: Standard YouTube License, CC-BY