Consider the Following Timeline

question 5

Multiple Choice

Consider the following timeline:
If the current market rate of interest is 12%,then the value of the cash flows in year 0 and year 2 as of year 1 is closest to:

• A)$257.29
• B)-$78.71
• C)$78.71
• D)$1.29

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Definitions:

Standard Deviation

A measure of the dispersion or spread of a set of numbers, indicating how much variation exists from the average.

Risky Asset

An investment that holds a degree of uncertainty regarding its returns or principal amount.

Non-Risky Asset

A financial asset with a guaranteed or highly predictable return rate, such as government bonds.

Expected Return

The anticipated gain or loss for an investment over a given period, often expressed as a percentage.