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When a bonds stated interest rate is less than the market interest rate is the rate at a discount or premium?
When the coupon rate (the contractual periodical "interest" payments) are lower than the yield (the market required return) the bond will be in discount. This discount makes up for the low value of the coupons.
Present value of the dollar?
8-9 cents Increases with lower interest rates and decreases with longer periods of time.
What is discounting principles in managerial economic?
The discounting principle in managerial economic is the opposite of compounding. It is based on the present value of a sum of money you are getting in the future, the discount rate and the frequency.
Why is cost of home insurance increasing when the value of the home is decreasing in value?
Many older Homes, like older Automobiles can cost more to repair.
Why do bond prices and yields vary inversely?
Bonds are valued by discounting the coupon payments and the final repayment by the yield to maturity on comparable bonds. The bond payments discounted at the bond’s yield to maturity equal the bond price. You may also start with the bond price and ask what interest rate the bond offers. This interest rate that equates the present value of bond payments to the bond price is the yield to maturity. Because present values are lower when discount rates are higher, price and yield to maturity vary inversely.
As the discount rate becomes higher and higher the present value of inflows approaches what?
As, the present value of future cash flows is determined by the discount rate, so increase or decrease in the discount rate will affect the present value. Discount rate is simply cost or the expense to the company,so in simplest terms, discount rate goes up, cost goes up,so this will lower the present value of cash flows. Assumes a discount rate of 5%,to discount $100 in one years time: Present Value=$100 * 1/(1.05) =$95.24 Ok,as you say,if the discount rate becomes higher,let's say 8%: Present Value=$100 * 1/(1.08) =$92.6 so, the higher the discount rate, the lower the present value.
What is normally used as the discount rate in the net present value method?
the net present value as determined by normal discount rate is 10%
What is the present value of 500 to be received 10 yrs from today if it is discount at the rate of 6 percent?
What is the present value of 500 to be recieved 10 yrs from today if it is discount at the rate of 6 percent?
Is the interest rate and discount rate in present value?
yes they are the same
What are the four pieces to an annuity present value?
The four pieces to an annuity present value are: Present value(PV), Cashflow (C), Discount rate (r) and the life of the annuity (t)
Why a high discount rate gives a low present value of a cash flow?
The higher the discount rate, the more time value of money we are tacking out of original amount from the future value
If the compounding rate becomes lower and lower the future value of inflows approaches .?
the present value of the inflows
As the discount rate increases without limit the present value of a future cash flow?
Decreases.... The formula is PV = $1 / (1 + r)t PV = Present Value r = discount rate Because 1/r continues to get smaller as r increases, thus resulting in an exponentially smaller Present Value.
Is a loan with a lower present value preferable to a loan with a lower periodic installment?
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To increase a given present value the discount rate should be adjusted?
To increase a given present value, you would generally lower the discount rate. This is because a lower discount rate reduces the impact of future cash flows, making the present value higher. Conversely, increasing the discount rate would decrease the present value.
What is preferable a loan with a lower present value or a loan with a lower periodic installments?
loan with lower present value means higher tenure of repayment & because of this higher tenure its present value factor increases and its present value gets reduced. on the other hand loan with lower periodic installments means again you are making repayments over longer period of time. so as far as my knowledge is concerned, both are same
Which is preferable a loan with a lower present value or a loan with a lower periodic installment and why?
The answer is it depends. Assuming that the way that you get the present value of the loan is by applying a discount rate to the payment stream to both loans, the obvious answer would be that the desirable one is the one with the lowest present value. However, things are not so simple. You also have to take into consideration the impact on your cash flow. The following thoughts will give you an idea of where I am coming from. - By paying a lower payment, you will have extra cash available to invest. - What kind of return can you make on this extra cash? - This is the main reason why borrowers want longer maturities.
