If the Annual Interest Rate Is 9%,what Would You Expect

question 68

Multiple Choice

If the annual interest rate is 9%,what would you expect to pay for a bond paying a lump sum of $10,000 in two years?

• A) $8,200
• B) $8,417
• C) $10,000
• D) $11,881

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Definitions:

Annual Cash flows

The total amount of money being transferred in and out of a business over the course of a year.

Expected NPV

The anticipated net present value of an investment, considering various future scenarios and their probabilities.

Cost of Capital

The minimum expected return necessary to attract investors to provide capital for a project or investment.

Certainty Equivalent Approach

A method used to evaluate investment opportunities under conditions of uncertainty, adjusting future cash flows to present value as if they were certain.