What Is the Present Value of the Following Cash Flow

question 15

Multiple Choice

What is the present value of the following cash flow stream at a rate of 8.0%?

• A) $7, 917
• B) $8, 333
• C) $8, 772
• D) $9, 233
• E) $9, 695

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Definitions:

Long-Duration Bonds

Bonds with a longer time until maturity, typically more than 10 years, making them more sensitive to changes in interest rates.

Duration Rule

A principle that estimates the sensitivity of a bond's price to changes in interest rates, calculated as the weighted average time until a bond's cash flows are received.

Yield

The income return on an investment, such as the interest or dividends received, expressed annually as a percentage of the investment's cost.

Duration

A measure of the sensitivity of a bond's or fixed income portfolio's price to changes in interest rates, typically expressed in years.