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. What are the disadvantages of using net present value as an investment criterion?

    While net present value (NPV) calculations are useful when you are valuing investment opportunities, the process is by no ... Read Answer >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  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. Investing

    Calculating Net Present Value at Different Points Using Excel

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

    Understanding The Time Value Of Money

    Find out why time really is money by learning to calculate present and future value.
  4. Markets

    Calculating the Present Value of an Annuity

    The present value of an annuity is the current, lump sum value of periodic future payments as calculated using a specific rate.
  5. Investing

    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.
  6. Managing Wealth

    How to Calculate the Value of Annuities

    Here's everything you need to account for when calculating the present and future value of annuities.
  7. Trading

    Time Value Of Money: Determining Your Future Worth

    Determining monthly contributions to college funds, retirement plans or savings is easy with this calculation.
  8. Investing

    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.
  9. Financial Advisor

    Monthly Pension Or Lump-Sum: Which Is Better?

    When a client is faced with the choice of a monthly pension or a lump-sum payment, which one is better? Here's a quick guide on how to decide.
  10. Trading

    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.
RELATED TERMS
  1. Present Value - PV

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

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

    The interest rate charged to commercial banks and other depository ...
  4. Present Value Of An Annuity

    The current value of a set of cash flows in the future, given ...
  5. Time Horizon

    The length of time over which an investment is made or held before ...
  6. Rate Of Return

    The gain or loss on an investment over a specified period, expressed ...
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center