Table of Contents

- 1 Is based on the notion that a dollar paid in the future is less valuable?
- 2 Why is a dollar today worth more than a dollar received in the future?
- 3 What is the present value of $500.00 to be paid in one year if the interest rate is 5 percent?
- 4 Is it better for bondholders when the yield to maturity increases or decreases?
- 5 Why is money worth less now?
- 6 Why cash is King not profit?
- 7 When yield curves are steeply upward sloping?
- 8 Would a dollar tomorrow be worth more to you today when the interest rate is 20% or when it is 10 %?
- 9 Which is less valuable a dollar today or a dollar in the future?
- 10 Is the value of a dollar the same as a time value?
- 11 What is the discount factor for a dollar?

## Is based on the notion that a dollar paid in the future is less valuable?

Question: ▼ Cash Flow Present Discounted Value Interest Rate is based on the notion that a dollar paid in the future is less valuable than a dollar paid today.

## Why is a dollar today worth more than a dollar received in the future?

A dollar received today is worth more than a dollar to be received in the future because funds received today can be invested to earn a return. A dollar received today is worth less than a dollar to be received in the future because future dollars are not affected by inflation.

**Why is a cash flow in the future worth less than the same amount today?**

The time value of money is a simple truth that states that a dollar today is not the same value as a dollar at a future date due to the economic realities of inflation and interest rates.

### What is the present value of $500.00 to be paid in one year if the interest rate is 5 percent?

An increase in the time to the promised future payment ________ the present value of the payment. What is the present value of $500.00 to be paid in two years if the interest rate is 5 percent? 10 percent.

### Is it better for bondholders when the yield to maturity increases or decreases?

Bond holders are better off when the yield to maturity: decreases, since this represents an increase in the price of the bond and a decrease in potential capital losses.

**Is the final amount that will be paid to the holder of a coupon bond?**

face value

face value is the final amount that will be paid to the holder of a coupon bond.

#### Why is money worth less now?

The impact inflation has on the time value of money is that it decreases the value of a dollar over time. Inflation increases the price of goods and services over time, effectively decreasing the number of goods and services you can buy with a dollar in the future as opposed to a dollar today.

#### Why cash is King not profit?

Not all revenues are paid for in cash when the transaction occurs. Not all expenses incurred are paid for in cash when the transaction occurs. Problems occur when there is not enough cash coming into the company to offset the cash required to go out at any particular time.

**Would it make sense to buy a house when mortgage rates are 14% and expected inflation is 15 %?**

Would it make sense to buy a house when mortgage rates are 14% and expected inflation is 15%? Explain your answer. 5. Answer: Even though the nominal rate for the mortgage appears high, the real cost of borrowing the funds is -1%.

## When yield curves are steeply upward sloping?

43) According to the expectations theory of the term structure, A) when the yield curve is steeply upward-sloping, short-term interest rates are expected to rise in the future.

## Would a dollar tomorrow be worth more to you today when the interest rate is 20% or when it is 10 %?

Would a dollar tomorrow be worth more to you today when the interest rate is 20%, or when it is 10%? The present value moves opposite to the interest rate, therefore, today’s value will be lower if the interest rate is 20%.

**What is the yield to maturity on a simple loan for 1 million that requires a repayment of 2 million in 5 years time?**

6. What is the yield to maturity on a simple loan for $1 million that requires a repayment of $2 million in five years’ time? $1 million = $2 million/(1+i)5 (1+i)5 = $2 million/$1 million 1 + i = 21/5 i = 1.149 – 1 i = 0.149 i = 14.9% Page 2 7.

### Which is less valuable a dollar today or a dollar in the future?

1) The concept of ________ is based on the common-sense notion that a dollar paid to you in the future is less valuable to you than a dollar today. A) present value B) future value

### Is the value of a dollar the same as a time value?

The time value of money is a simple truth that states that a dollar today is not the same value as a dollar at a future date due to the economic realities of inflation and interest rates.

**How does the value of money change with time?**

The later money is received, the less value it holds, and $1 today is worth more than $1 received at a date in the future. 9 At time 0, the discount factor is 1, and as time goes by, the discount factor decreases. A present value calculator is used to obtain the value of $1 or any other sum of money over different time periods. 10

#### What is the discount factor for a dollar?

A PV table shows discount factors from time 0 (i.e., the current day) onward. The later money is received, the less value it holds, and $1 today is worth more than $1 received at a date in the future. 9 At time 0, the discount factor is 1, and as time goes by, the discount factor decreases.