In which of the following situations would it NOT be appropriate to use the following formula: PV = C₀ + C₁/(1 + r)+ C₂/(1 + r)² + . . . . + C_n/(1 + r)ⁿ When determining the present value (PV)of a cash flow stream? A)when yield curves are flat B)when short-term and long-term interest rates vary widely C)when the discount rate is high D)when the inflation rate is high

Question

Quizplus · Accepted Answer

The formula provided is for calculating the present value (PV) of a cash flow stream, assuming a constant discount rate (r). When short-term and long-term interest rates vary widely, the assumption of a constant discount rate becomes less accurate, making the formula inappropriate for such situations.

In Which of the Following Situations Would It NOT Be