Indicate whether each of the following is true (T) or false (F) in the space provided.
|
1. |
Present value is based on three variables: (1) the dollar amount to be received (future amount), (2) the probability of receiving that amount in the future, and (3) the interest rate (the discount rate). |
|
2. |
The process of determining the present value is referred to as discounting the future amount. |
|
3. |
In computing the present value of an annuity, it is necessary to know the (1) discount rate, (2) the number of discount periods, and (3) the present value. |
|
4. |
Discounting may also be done over shorter periods of time such as monthly, quarterly, or semiannually. |
|
5. |
The present value (or market price) of a bond is a function of three variables: (1) the payment amounts, (2) the length of time until the amounts are paid, and (3) the discount rate. |