International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Logan is conducting an economic evaluation under inflation using the then-current approach. If the inflation rate is j and the real time value of money rate is d, which of the following is the interest rate he should use for discounting the cash flows? a. j b. d c. j + d d. j + d + dj.
Which of the following statements about the time value of money is true?
a.) A dollar in hand today is worth less than a dollar to be received in the future.
b. ) The value of a dollar invested at a positive interest rate decreases over time.
c.) The further in the future you receive a dollar, the less it is worth today.
d.)The higher the rate of interest, the more likely an investor will elect to consume at present and forgo invest his funds.
what are the reason that the value of a dollar tomorrow is not the same as the value of a dollar today?
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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
- In an inflationary period, what is the difference between (a) inflated dollars and “then-current” future dollars, and (b) “then-current” future dollars and constant-value future dollars?arrow_forwardWhy is a dollar today worth less than a dollar sometime in the future?arrow_forwardHow is the market interest rate in the short-term and long-term financial market affected under the Pure Expectations theory when suppliers and users of loanable funds expect that interest rates will decrease the next year?arrow_forward
- Which of the following is not a factor in explaining why the present value of a future dollar is less than one dollar?A. InterestB. Inflation C. Risk of failure to receive expected cash inflows D. Historic costarrow_forwardWhat is the money measurement concept? Which one factor can make it difficult to compare the monetary values of one year with the monetary values of another year?arrow_forwardYou are considering investing money in Treasury bills and wondering what the real risk-free rate of interest is. Currently, Treasury bills are yielding 4.3% and the future inflation rate is expected to be 2.5% per year. Ignoring the cross product between the real rate of interest and the inflation rate, what is the real risk-free rate of interest?arrow_forward
- What is the (exact) nominal return on an investment that earns a real return of 14.7% while inflation is 7.4%? Enter your response, in percent (%), correct to TWO decimal places.arrow_forwardWhich of the following will shorten the cash cycle? Select one: A. An increase in the raw materials inventory holding period B. An increase in the production period C. An increase in the trade receivables days D. An increase in the trade payables daysarrow_forwardJack Smith is concerned that the pound may depreciate substantially over the next month, but he also believes that the pound could appreciate substantially if specific situations occur. Should Jack use currency futures or currency options to hedge the exchange rate risk? Is there any disadvantage of selecting this method for hedging?arrow_forward
- Suppose the real rate on your investment is 9.5 percent and the inflation rate is 2.6 percent. What nominal rate would you expect to see on your investment? Use the Fisher Effect Formula.arrow_forwardIf the inflation rate is expected to remain constant at the current level in the future,would the yield curve slope up, slope down, or be horizontal? Consider all factorsthat affect the yield curve, not just inflation.arrow_forward1. Reflect, analyze and explain the phrase: "a dollar today is worth more than a dollar tomorrow."arrow_forward
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