Ch. 1-3

Question 1

FV =

Answer 1

principal + interest

C₁ (1 + r)

Question 2

NPV steps

Answer 2

1. PV of future cash flows
2. NPV = PV of future flows - required investment

Question 3

PV

Answer 3

C₁/1+r

Question 4

declining discount factors

Answer 4

1 > DF₁ > DF₂ > DF₃ …

time value of money

absence of arbitrage (risk-less profit)

Question 5

perpetuity

Answer 5

C/r