Finance 320 Chapter 3

Which of the following situations is best described by the timeline shown below? You make payments of $250 per month for six months.
If an arbitrage opportunity exists, an investor can act quickly in the hope of making a risk – free profit. True
Dollar amounts received at different points in time cannot be compared in absolute terms. True
Which of the following is the overarching principle that a financial manager should follow when making decisions? Decisions should increase the value of the firm to its investors.
Why are arbitrage opportunities short – lived? Once investors take advantage of the opportunity, prices will respond so that the buying and selling price becomes equal.
To calculate a cash flow’s present value (PV), you must compound it. False
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? It will have no effect on the future value.
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. True
Whenever a good trades in a competitive market, the ________ determines the value of the good. price

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