Consider an asset which will make a single cash flow payment of $250 in 5 years. The interest rate used to discount the cash flow is 6%, compounded annually. Holding all the other parameters constant, which of the following will increase the asset's price?
a) an increase in the cash flow to $300
b) an increase in the discount rate to 6.5%
c) an increase in futurity from 5 to 6 years
d) an increase in the frequency of compounding to semi-annual
Answer: a) an increase in the cash flow to $300
Business
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