If You Use Futures Prices to Estimate the Cash Flows

question 65

Multiple Choice

If you use futures prices to estimate the cash flows from commodity production, the estimates are
I.present values of future cash flows
II.certainty equivalents;
III.same as the estimates using spot prices

• A)I only
• B)II only
• C)III only
• D)I and III only

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Definitions:

Annuity Due

A type of annuity in which payments are made at the beginning of each period, rather than at the end.

Present Value

The present worth of a sum of money or a series of cash flows expected in the future, assuming a certain rate of return.

Compounded Annually

A method of calculating interest where the interest rate is applied once per year, and each year’s interest calculation includes the interest from the previous years.

Annual Rents

Regular payments made for the use of property or land over a yearly basis.