Suppose You Have $500 Today and the Risk-Free Interest Rate

question 64

Multiple Choice

Suppose you have $500 today and the risk-free interest rate (r_f) is 5%.The equivalent value in one year is closest to:

• A)$475
• B)$476
• C)$500
• D)$525

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Definitions:

Corporate Tax Rate

The percentage of a corporation's profits that is paid to the government as tax, varying by country and sometimes by the size or type of business.

Enterprise Multiple

A ratio used to determine the value of a company that takes into account its debt and equity, calculated by dividing the enterprise value by EBITDA.

EBIT

Known as Earnings Before Interest and Taxes, this financial gauge calculates a firm's profitability without considering interest and income tax charges.

Average Collection Period

The average number of days it takes for a company to collect payments from its customers, a measure of the efficiency of its credit policies.