The present value of an amount can be represented as PV = FV [PVF ] PV = FV [PVF

Question

The present value of an amount can be represented as PV = FV [PVF ] PV = FV [PVF ] PV = FV [1/(1 + k) ] a and c The process of finding present values is frequently called annualizing compounding discounting The present value of the cash flows expected to come from owning a share of stock is the maximum price as investor should be willing to pay for the share. is the minimum price as investor should be willing to pay for the share. is not related to the price that an investor should be willing to pay for the share. all of the above. You have just calculated the present value of the expected cash flows of a potential investment, Management thinks your figures are too low. Which of the following actions would increase the present value of your cash flows? assume a longer stream of cash flows of the same amount increase the discount rate decrease the discount rate a and c A security's value is equal to: the book value of the firm the book value of the firm divided by number of shares the future value of its expected cash flows the present value of its expected cash flows Bonds are referred to as -amortizable debt, which means: interest is paid regularly during the term, usually semiannually whereas repayments of principal are annual interest is paid regularly during the term, usually semiannually, and repayments of principal are semiannual interest is paid regularly during the term, usually semiannually, whereas repayment of principal does not occur until the maturity date interest and principal are paid regularly during the term, usually annually

Explanation / Answer

7. PV formula is PV= FVn/(1+k)^n

So the option c is correct.

8. The process of finding present value is called discounting.

Option c is correct.

9. The PV of the expected cash flows from a stock is the maximum price an investor is willing to pay for an investment.

So correct option is a.

10. A longer stream of cash flows and a reduced discounting factor can increase the PV of the investment.

So Correct Option is   d. (a&c)

11.

A security’s value is the PV of the expected cash flows from it.

So correct option is d.

12. Bonds are called non –amortizable debt as the interests are paid regularly , usually semi annually , whereas the principal amount is not paid back till the maturity date..

So option c is correct.

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