Which of the Following Statements Is CORRECT

question 109

Multiple Choice

Which of the following statements is CORRECT?

• A)If you have a series of cash flows, each of which is positive, you can solve for I, where the solution value of I causes the PV of the cash flows to equal the cash flow at Time 0.
• B)If you have a series of cash flows, and CF₀ is negative but each of the following CFs is positive, you can solve for I, but only if the sum of the undiscounted cash flows exceeds the cost.
• C)To solve for I, one must identify the value of I that causes the PV of the positive CFs to equal the absolute value of the PV of the negative CFs. This is, essentially, a trial-and-error procedure that is easy with a computer or financial calculator but quite difficult otherwise.
• D)If you solve for I and get a negative number, then you must have made a mistake.
• E)If CF₀ is positive and all the other CFs are negative, then you cannot solve for I.

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Definitions:

Margin Accounts

Brokerage accounts that allow investors to borrow money from the broker to buy securities, subject to maintenance requirements.

Primary Market

The primary market is where securities are created and sold for the first time, involving direct transactions between issuers and investors.

Security Issues

The process of offering new securities to the market, including initial public offerings (IPOs) and bond issuances.

Auction Market

A market where buyers and sellers enter competitive bids simultaneously; stock exchanges are an example, where prices are determined by the highest bid and lowest ask.