You Are Trying to Compare the Present Values of Two

question 72

Multiple Choice

You are trying to compare the present values of two separate streams of cash flows that have equivalent risks. One stream is expressed in nominal values and the other stream is expressed in real values. You decide to discount the nominal cash flows using a nominal annual rate of 8 percent. What rate should you use to discount the real cash flows?

• A) 8 percent
• B) EAR of 8 percent compounded monthly
• C) Comparable risk-free rate
• D) Comparable real rate
• E) Nominal rate minus the risk-free rate

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Definitions:

Business Model

A plan or framework a company uses to operate, generate revenues, and make a profit, detailing how it conducts business.

Strategies

Plans of action developed to achieve long-term or overall goals in various contexts, such as business, marketing, or military.

Value

The importance, worth, or usefulness of something, often considered in terms of financial, social, or personal significance to individuals or entities.

Road Map

A Road Map is a strategic plan that outlines the steps, milestones, and objectives needed to achieve a set of goals, often used in project planning and product development.