To discuss: Rate of
Explanation of Solution
The interest rate where n individual can earn on an investment that is alternative with a risk that is equivalent to the risk on certain investment is known as the rate of opportunity cost. This represents the value in the time value of investments equations and it is on the top of the time line. It is not the single rate and the opportunity cost differs based on the maturity an riskiness of an investment. However, based on the investment it differs from year to year depending on the inflationary expectations.
Want to see more full solutions like this?
Chapter 4 Solutions
Bundle: Financial Management: Theory & Practice, 16th + MindTap, 1 term Printed Access Card
- How does the size of the initial investment affect the internal rate of return on the net present value models?arrow_forwardWhat is the equation to calculate the payback period?arrow_forwardHow does one determine the value of any asset whose value is based on expected future cash flows?arrow_forward
- What is the equation to calculate the accounting rate of return?arrow_forwardWhich of the following discounts future cash flows to their present value at the expected rate of return, and compares that to the Initial Investment? A. internal rate of return (IRR) method B. net present value (N PV) C. discounted cash flow model D. future value methodarrow_forwardExplain Yields on Investment Annuities?arrow_forward
- What are investment returns?arrow_forwardWhat are: the payback method, the Accounting Rate of Return, and Discounted Cash Flow Model (Net Present Value and Internal Rate of Return)arrow_forwardWhat is the simple payback period? What is the net present value of the investment? What is the modified internal rate of return for the investment?arrow_forward
- Why are rates of return superior to dollar returns when comparingdifferent potential investments?arrow_forwardWhat is the Capital Asset Pricing Model and explain the variables used to calculate the required rate of return under this model?arrow_forwardWhat is the formula for the following: Payback period. Net Present Value Internal Rate of return Rate of Returnarrow_forward
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax CollegeIntermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning