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You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would increase the calculated value of the investment?


A) The cash flows are in the form of a deferred annuity, and they total to $100,000. You learn that the annuity lasts for 10 years rather than 5 years, hence that each payment is for $10,000 rather than for $20,000.
B) The discount rate decreases.
C) The riskiness of the investment's cash flows increases.
D) The total amount of cash flows remains the same, but more of the cash flows are received in the later years and less are received in the earlier years.
E) The discount rate increases.

F) C) and E)
G) A) and B)

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Time lines can be constructed in situations where some of the cash flows occur annually but others occur quarterly.

A) True
B) False

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Your uncle has $300,000 invested at 7.5%, and he now wants to retire. He wants to withdraw $35,000 at the end of each year, starting at the end of this year. He also wants to have $25,000 left to give you when he ceases to withdraw funds from the account. For how many years can he make the $35,000 withdrawals and still have $25,000 left in the end?


A) 14.21
B) 14.96
C) 15.71
D) 16.49
E) 17.32

F) A) and D)
G) C) and D)

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What is the PV of an ordinary annuity with 5 payments of $4,700 if the appropriate interest rate is 4.5%?


A) $16,806
B) $17,690
C) $18,621
D) $19,601
E) $20,633

F) B) and C)
G) C) and D)

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