Time Value Concepts May Be Used to Determine

question 29

Multiple Choice

Time value concepts may be used to determine
1. the annual growth rate in dividends
2. the amount in an IRA account after ten years
3. the tax owed on a capital gain

• A)1 and 2
• B)1 and 3
• C)2 and 3
• D)only 2

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Definitions:

Monte Carlo Simulation

A computational technique that uses random sampling and statistical modeling to estimate mathematical functions and mimic the operation of complex systems.

Probability Distributions

Probability distributions describe the likelihood of different outcomes in a stochastic process or experiment.

NPV

NPV, or Net Present Value, is a financial metric that calculates the difference between the present value of cash inflows and outflows over a period of time, used in capital budgeting to gauge the profitability of an investment.

Discount Rates

The rate of interest applied in discounted cash flow (DCF) analysis to calculate the current value of future cash flows.