Present Value of a Single Cash Flow

Check your understanding

5 questions

1. 1. What does "discounting" a future cash flow mean in the context of present value?
   Reducing the cash flow by subtracting a flat feeAdjusting the cash flow upward to account for inflationDividing the future cash flow by a compounding factor to express it in today's dollarsMultiplying the future cash flow by the discount rate--
2. 2. What is the present value of a $1,000 payment to be received in 4 years, given a discount rate of 8% compounded quarterly?
   $730.69$1,372.79$726.14$728.45--
3. 3. On the BA II Plus calculator, when computing the present value of a semi-annual compounded cash flow with an annual rate of 6% over 3 years, which settings are correct?
   N = 3, I/Y = 6, P/Y = 1N = 3, I/Y = 3, P/Y = 2N = 6, I/Y = 6, P/Y = 2N = 6, I/Y = 3, P/Y = 1--
4. 4. As the discount rate increases (holding the future cash flow and time period constant), what happens to the present value?
   Present value increases proportionallyPresent value remains unchangedPresent value increases exponentiallyPresent value decreases--
5. 5. Which of the following correctly expresses the relationship between present value and future value of a single cash flow?
   $FV = PV \times (1 + r/m)^{mT}$ and $PV = FV \times (1 + r/m)^{mT}$$PV = \dfrac{FV}{(1 + r/m)^{mT}}$ and $FV = PV \times (1 + r/m)^{mT}$$PV = FV \times (1 - r/m)^{mT}$$PV = \dfrac{FV}{(1 - r/m)^{mT}}$