A:

A. The amount of interest expected to be generated each year
B. The time horizon – how long the investment is expected to be held in the portfolio

C. The interest rate to be used for discounting the annual payments to be received

D. The amount needed at the end of the holding period

Answer: D

to calculate net present value, the discount rate, cash flows and time horizon are all required. The amount desired at the end of the period is not part of the equation.

RELATED FAQS
  1. How do you use a financial calculator to determine present value?

    Learn how to utilize a financial calculator to calculate present value. Understand the necessary data, why it is important ... Read Answer >>
  2. What is the difference between the cost of capital and the discount rate?

    Learn about the differences between the cost of capital and the discount rate as they relate to estimating a required return ... Read Answer >>
  3. When and why should the terminal value be discounted?

    Find out why investors use the terminal value, why the terminal value is discounted to the present day, and how it's related ... Read Answer >>
  4. The real rate of return is the amount of interest earned over and above the:

    a. discount rate. b. tax rate. c. inflation rate. d. risk-free rate of return. Answer: C Since the real rate of return measures ... Read Answer >>
  5. How do I calculate free, discounted and operational cash flow in Excel?

    Take a quick look at how you can calculate a company's operating cash flow, free cash flow and discounted cash flows using ... Read Answer >>
  6. Under the Income Capitalization approach to valuing real estate, which of the following ...

    The correct answer is: d) When valuing an entire property, and not just the equity portion in the property, we have to discount ... Read Answer >>
Related Articles
  1. Investing

    Discounting With The Discount Rate

    The discount rate is the interest rate you need to earn on a given amount of money today to end up with a given amount of money in the future. Let's say you need $1,000 one year from now to go ...
  2. Small Business

    Calculating Net Present Value at Different Points Using Excel

    Calculating the net present value (NPV) of your investment projects using Excel.
  3. Financial Advisor

    A Guide on the Risk-Adjusted Discount Rate

    When a project or investment faces higher amounts of risk or uncertainty, it may be appropriate to utilize the risk-adjusted discount rate.
  4. Small Business

    Capital Budgeting: Which is Better, IRR or NPV?

    Using internal rate of return and net present value for capital budgeting evaluations often end in the same result. But there are times when using NPV to discount cash flows makes more sense.
  5. Retirement

    How to Calculate the Value of Annuities

    Here's everything you need to account for when calculating the present and future value of annuities.
  6. Managing Wealth

    Valuation Of A Preferred Stock

    To find the value of the preferred stock, each future dividend payment needs to be discounted back to the present, and then added together.
  7. Investing

    Calculating Present Value Interest Factor

    The present value interest factor is a number that makes it easier to calculate the present value of a payment or value to be received in the future.
  8. Investing

    Time Value Of Money: Determining Your Future Worth

    Determining monthly contributions to college funds, retirement plans or savings is easy with this calculation.
RELATED TERMS
  1. Present Value - PV

    The current worth of a future sum of money or stream of cash ...
  2. Discounting

    The process of determining the present value of a payment or ...
  3. Investment Horizon

    The total length of time that an investor expects to hold a security ...
  4. Discount Rate

    The interest rate charged to commercial banks and other depository ...
  5. Rate Of Return

    The gain or loss on an investment over a specified period, expressed ...
  6. 1%/10 net 30

    A way of providing cash discounts on purchases. It means that ...
Hot Definitions
  1. Block (Bitcoin Block)

    Blocks are files where data pertaining to the Bitcoin network is permanently recorded.
  2. Fintech

    Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century.
  3. Ex-Dividend

    A classification of trading shares when a declared dividend belongs to the seller rather than the buyer. A stock will be ...
  4. Debt Security

    Any debt instrument that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount ...
  5. Taxable Income

    Taxable income is described as gross income or adjusted gross income minus any deductions, exemptions or other adjustments ...
  6. Chartered Financial Analyst - CFA

    A professional designation given by the CFA Institute (formerly AIMR) that measures the competence and integrity of financial ...
Trading Center