Suppose You Have $1000 Today and the Risk-Free Rate of Interest

question 39

Multiple Choice

Suppose you have $1000 today and the risk-free rate of interest (rf) is 3.5%.The equivalent value in one year is closest to:

• A)$965.00.
• B)$966.18.
• C)$1000.00.
• D)$1035.00.

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Definitions:

Conventional Cash Flows

Cash flow patterns characterized by an initial outflow (investment) followed by a series of positive cash inflows.

Analysis

This refers to the detailed examination and evaluation of data, facts, or financial figures to break down complex materials into smaller, understandable components, often for decision-making purposes.

Internal Rate of Return

A calculation used to estimate the profitability of potential investments, representing the discount rate at which the net present value of costs and benefits of a project are equal.

Minimum Acceptable Rate

The lowest return on an investment that a manager or investor is willing to accept, often based on risk assessment or alternative investment opportunities.