Changing the Discount Rate Is Equivalent to Adjusting Expected Cash

question 5

True/False

Changing the discount rate is equivalent to adjusting expected cash flows as a method of accounting for risk.

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Definitions:

Bank Discount

An interest deduction made in advance from a loan amount by the lender, often used in the context of Treasury bills.

Maturity Value

The total amount payable to an investor at the end of a security's hold period, including both the principal and interest.

Maturity Value

The total amount that will be paid to an investor at the maturity date of a financial instrument, including principal and interest.

Bank Discount

The difference between the face value of a banknote or security and its selling price, before it reaches its maturity.