Chapter 5 Practice Problems

Because the future value is not typically a random variable, we use its expected value.

false

Corporations some times issue Treasury bills when they lever up.

false

The opportunity cost of capital captures the rate of return on the next best investment of higher risk.

false

The opportunity cost of capital captures the rate of return on the next best investment of lower risk.

false

The rate of return is an economic bad. All else equal, you want it to be higher.

false

From the fundamental equation of finance, r = (FV/PV)1/t - 1.

true

Simple interest is a function of the initial principal.

true

When applying the rule of 72, the error increases when you use a rate progressively higher than eight percent.

true