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Fundamentals of Corporate Finance

Stephen A. Ross; Randolph W. Westerfield; Bradford D. Jordan

Chapter 5

INTRODUCTION TO VALUATION: THE TIME VALUE OF MONEY - all with Video Answers

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Chapter Questions

00:58

Problem 1

The basic present value equation has four parts. What are they?

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
01:14

Problem 2

What is compounding? What is discounting?

MS
Mike Stern
Numerade Educator
01:50

Problem 3

As you increase the length of time involved, what happens to future values? What happens to present values?

Narayan Hari
Narayan Hari
Numerade Educator
01:35

Problem 4

What happens to a future value if you increase the rate $r$ ? What happens to a present value?

Tristan Wille
Tristan Wille
Numerade Educator

Problem 5

Take a look back at Example 5.7. Is it deceptive advertising? Is it unethical to advertise a future value like this without a disclaimer?

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01:46

Problem 6

Why would TMCC be willing to accept such a small amount today $$(\$ 24,099)$$ in exchange for a promise to repay about four times that amount $$(\$ 100,000)$$ in the future?

Amy Jiang
Amy Jiang
Numerade Educator

Problem 7

TMCC has the right to buy back the securities on the anniversary date at a price established when the securities were issued (this feature is a term of this particular deal). What impact does this feature have on the desirability of this security as an investment?

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Problem 8

Would you be willing to pay $$\$ 24,099$$ today in exchange for $$\$ 100,000$$ in 30 years? What would be the key considerations in answering yes or no? Would your answer depend on who is making the promise to repay?

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Problem 9

Suppose that when TMCC offered the security for $$\$ 24,099$$, the U.S. Treasury had offered an essentially identical security. Do you think it would have had a higher or lower price? Why?

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Problem 10

The TMCC security is bought and sold on the New York Stock Exchange. If you looked at the price today, do you think the price would exceed the $$\$ 24,099$$ original price? Why? If you looked in the year 2019, do you think the price would be higher or lower than today's price? Why?

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