Managerial Finance – Problem Review Set – Time Value of Money

Managerial Finance – Problem Review Set – Time Value of Money

1.)

|Suppose an investor plans to invest a given sum of money. She can earn an effective annual rate of 5% on Security A, while Security B will |

|provide an effective annual rate of 12%. Within 11 years' time, the compounded value of Security B will be more than twice the compounded |

|value of Security A. (Ignore risk, and assume that compounding occurs annually.) |

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|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. |

6.)

|Which of the following...