Make sure you and LABEL IT CLEARLY. You MUST provide financial calculator inputs

Question

Make sure you and LABEL IT CLEARLY. You MUST provide financial calculator inputs AND the answer. Answer-Only responses, even if correct, WILL NOT receive full credit. Which of the following statements is TRUE concerning the Fisher Effect: The negotiated rate of return for most transactions MUST BE the "real" rate of return. The "real' rate of return is always HIGHER than the nominal rate. The total required return on an interest hearing investment usually includes some assumption about future inflation rates. Changes in the purchasing power of Cash Flows are generally irrelevant to the decision process. An ORDINARY ANNUITY is a stream of fixed receipts or disbursements over a given period of time Which earns interest (return) for one LESS period than an annuity due Which earns interest (return) for one MORE period than an annuity due Which results in a PRESENT VALUE calculation Which results in a FUTURE VALUE calculation (TRUE OR FALSE) PV Interest Factors are the reciprocals of FV Interest Factors for the same period and rate of return. (TRUE OR FALSE) FROM A BONDHOLDER'S PERSPECTIVE, a Bond with a sinking fund is MORE RISKY than an otherwise identical Bond without a Sinking Fund provision. (TRUE OR FALSE) Bond Yield to Maturity (YTM) is similar to an 1/Y calculation in a "standard" TVM calculation. (TRUE OR FALSE) The term Operating Cash Flow (OCF) is synonymous with the Cash Flow From Assets (CFFA).

Explanation / Answer

Ans 1 is C: The Fisher effects tells us that there will be a element of inflataion in all the return received on invested assets, hence ans is C

ANs 2: is B Annuity due is actually giving the returns one period earlier than the ordinary annuity that means ordinary annuity earns interest for 1 more period than the annuity due.

ANs 3: True, PVIF is the reciprocal of FVIF for the same period

Ans 4: False, for bond holders it reduces the risk since there will be a pool of assets in terms of sinking funds for bondholders in case of default.

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