Chapter 5 - Chapter 5 1. You plan to analyze the value of a...

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Chapter 5 1 . You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment? a. The cash flows are in the form of a deferred annuity, and they total to \$100,000. You learn that the annuity lasts for only 5 rather than 10 years, hence that each payment is for \$20,000 rather than for \$10,000. b. The discount rate increases . c. The riskiness of the investment’s cash flows decreases . d. The total amount of cash flows remains the same, but more of the cash flows are received in the earlier years and less are received in the later years. e. The discount rate decreases . b 2 . Which of the following statements is CORRECT? a. The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods. b. If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity. c.

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This note was uploaded on 11/28/2010 for the course FIN 3403 taught by Professor Avondstost during the Spring '10 term at Miami Dade College, Miami.

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Chapter 5 - Chapter 5 1. You plan to analyze the value of a...

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