Consider the Following Timeline Detailing a Stream of Cash Flows

question 12

Multiple Choice

Consider the following timeline detailing a stream of cash flows: If the current market rate of interest is 6%,then the future value of this stream of cash flows is closest to:

• A) $1,723
• B) $1,500
• C) $1,626
• D) $1,288

---

Definitions:

Interest Rate Collar

A risk management strategy used to limit exposure to interest rate fluctuations by setting upper and lower bounds.

Risk Exposure

Risk exposure is the measure of potential future losses that may result from business activities or investment decisions, due to risks that have been taken.

Variable-Rate Loan

A loan in which the interest rate can change over time, based on an underlying benchmark interest rate or index.

Interest Rate Cap

A financial derivative contract that limits the maximum interest rate a borrower has to pay on a variable-rate loan.