All Else Being the Same, Which of the Following Statements

question 186

Multiple Choice

All else being the same, which of the following statements is correct?

• A) Present values increase as the discount rate increases I only.
• B) Present values decrease as the discount rate decreases.
• C) Present values increase the further away in time the future value.
• D) Present values are always smaller than future values when both r and t are positive.
• E) Present values are always smaller than future values when r is negative and t positive.

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Definitions:

After Tax

Pertains to the amount of money left over or the value of transactions after all applicable taxes have been subtracted.

Perpetuity Rate of Return

The rate at which an infinite series of cash flows, received indefinitely, is discounted to equate its present value.

Stated Dividend

The amount of dividend that a company declares to be paid out to its shareholders, usually expressed as a fixed amount per share.

Cost of Capital

The yield a corporation needs to generate on its investments in order to preserve its market value and draw in financing.