« previous next »

Author Question: Money-market hedges and forward-market hedges rely on the A) law of large numbers. B) purchasing ... (Read 95 times)

vicotolentino

  • Hero Member
  • *****
  • Posts: 552
on: Jul 10, 2018
Money-market hedges and forward-market hedges rely on the
 
  A) law of large numbers. B) purchasing power parity theory.
  C) capital asset pricing model. D) interest rate parity theory.

Question 2

You are presented with two cash flow options: Option Near, a 5,000 annuity for three years, with the first cash flow one year from today, or Option Far, a 5,000 annuity for six years with the first cash flow ten years from today.
 
  Assuming an interest rate of 7.0, which set of cash flows has a greater present value?
  A) Option Near has a greater PV of 13,121.58 vs. Option Far PV of 12,963.41.
  B) Option Far has a greater PV of 13,121.58 vs. Option Near PV of 12,963.41.
  C) Option Far has a greater PV of 30,000 vs. Option Near PV of 15,000.
  D) Option Near and Option Far have the same PV of 12,963.41.


frankwu0507

  • Sr. Member
  • ****
  • Posts: 322
Reply #1 on: Jul 10, 2018
Answer to Question 1

D

Answer to Question 2

Answer: A
Explanation: A) Although this problem is not directly addressed in the text, its intended effect is to reinforce the idea of present value. In this kind of problem, the student must find a present value in the future, and then discount that renamed future value back to the present value at time zero.
Option Near: PV = PMT  = 5,000  = 13,121.58.
Option Far: PV = PMT  / (1 + r)n = 5,000  / (1.07)9 = 12,963.41.


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
« previous next »
 

Did you know?

During the twentieth century, a variant of the metric system was used in Russia and France in which the base unit of mass was the tonne. Instead of kilograms, this system used millitonnes (mt).

Did you know?

The Food and Drug Administration has approved Risperdal, an adult antipsychotic drug, for the symptomatic treatment of irritability in children and adolescents with autism. The approval is the first for the use of a drug to treat behaviors associated with autism in children. These behaviors are included under the general heading of irritability and include aggression, deliberate self-injury, and temper tantrums.

Did you know?

An identified risk factor for osteoporosis is the intake of excessive amounts of vitamin A. Dietary intake of approximately double the recommended daily amount of vitamin A, by women, has been shown to reduce bone mineral density and increase the chances for hip fractures compared with women who consumed the recommended daily amount (or less) of vitamin A.

Did you know?

The Centers for Disease Control and Prevention (CDC) was originally known as the Communicable Disease Center, which was formed to fight malaria. It was originally headquartered in Atlanta, Georgia, since the Southern states faced the worst threat from malaria.

Did you know?

Stroke kills people from all ethnic backgrounds, but the people at highest risk for fatal strokes are: black men, black women, Asian men, white men, and white women.

(a) With few ticks, moose retain a brown coat; (b) at high numbers of ticks, moose self-groom, destr (a) With few ticks, moose retain a brown coat; (b) at high numbers of ticks, moose self-groom, destr
Managing large bands of grazing animals requires detailed knowledge of local landscapes, especially Managing large bands of grazing animals requires detailed knowledge of local landscapes, especially
Meningocele. (a) A meningocele is a herniation of the meninges, usually associated with the spinal c Meningocele. (a) A meningocele is a herniation of the meninges, usually associated with the spinal c
Plasma protein binding and drug availability: (a) drug exists in a free state or bound to plasma pro Plasma protein binding and drug availability: (a) drug exists in a free state or bound to plasma pro
The proboscis monkey demonstrates that large gut size contributes to a lower EQ. The proboscis monkey demonstrates that large gut size contributes to a lower EQ.
Sequencing a large chromosome by individual sequence determination of cloned fragments in sequences Sequencing a large chromosome by individual sequence determination of cloned fragments in sequences
Video: The Lagging Strand in DNA Replication and Replication in Action

For a complete list of videos, visit our video library