Finance 320 Chapter 3 – Flashcards
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Which of the following situations is best described by the timeline shown below?
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You make payments of $250 per month for six months.
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If an arbitrage opportunity exists, an investor can act quickly in the hope of making a risk - free profit.
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True
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Dollar amounts received at different points in time cannot be compared in absolute terms.
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True
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Which of the following is the overarching principle that a financial manager should follow when making decisions?
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Decisions should increase the value of the firm to its investors.
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Why are arbitrage opportunities short - lived?
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Once investors take advantage of the opportunity, prices will respond so that the buying and selling price becomes equal.
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To calculate a cash flow's present value (PV), you must compound it.
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False
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You are scheduled to receive $10,000 in one year. What will be the effect of an increase in the interest rate on the future value of this cash flow?
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It will have no effect on the future value.
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The Law of One Price states that if equivalent goods or securities are traded simultaneously in different competitive markets, they will trade for the same price in each market.
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True
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Whenever a good trades in a competitive market, the ________ determines the value of the good.
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price
