Canadian Securities Course (CSC) Level 1 Practice Exam

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Describe how to find the PV of the income streams.

Use the formula AVP = C / (1 + r)^n
Use only interest rates in the calculation
Subtract the future value from the present value
Use the formula APV = C[1- (1/((1+r))^n) / r]

The correct answer is: Use the formula APV = C[1- (1/((1+r))^n) / r]

Option D is the correct answer. To find the present value (PV) of an income stream, you need to use the formula APV = C[1- (1/((1+r))^n) / r]. This formula takes into account the cash flow (C) of the income stream, the interest rate (r), and the time periods (n) over which the income is received. By using this formula, you can calculate the present value of the income stream, which represents the value of all future cash flows today. Options A and B are incorrect because they do not provide the complete formula for calculating the present value of income streams. Option A is a simplified formula for calculating the annuity's present value, which may not be applicable in all cases. Option B, suggesting to use only interest rates, overlooks other important factors like cash flows and time periods involved in the income stream. Option C is also incorrect because subtracting the future value from the present value does not directly calculate the present value of income streams. This approach may lead to inaccuracies in determining the true value of future cash flows discounted to present value.