You Have a $50 Cash Flow That Is to Be

question 21

Multiple Choice

You have a $50 cash flow that is to be received 1.3 years from now. The one-year zero-coupon rate is 6% and the one-and-a-half-year zero-coupon rate is 7%, both in continuously-compounded and annualized terms. If you preserve net present value and duration risk, how would you allocate the cash flow into two equivalent cash flows in the one-year and one-and-a-half-year buckets?

• A) 18.23 and 32.01
• B) 19.47 and 30.54
• C) 19.54 and 30.46
• D) 20.00 and 30.00

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Definitions:

Current Liabilities Netted

The process of offsetting current assets against current liabilities to determine the net working capital or financial position in the short term.

Federal Income Tax Withholding

The process where employers withhold a portion of employees' wages as an advance payment of federal income tax.

Hourly Wage Rate

The hourly wage rate is the amount of money paid to an employee for each hour of work performed.

Note Payable

A written agreement where one party promises to pay another party a specific sum of money on a certain date or upon demand.