If the Interest Rate Is 8 Percent, a Person Who

question 88

Multiple Choice

If the interest rate is 8 percent, a person who is offered the opportunity to buy an annuity paying $30, 000 per year forever should

• A)do so if the price is greater than $375, 000
• B)do so if the price is less than $375, 000
• C)be willing to pay only $37, 037 for it
• D)be willing to pay $77, 037 for it
• E)be willing to pay no more than $300, 000 for it

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Definitions:

Tax Refund

The amount of money returned to a taxpayer by the government when the taxpayer's total tax payments exceed their tax liability for a given year.

Proportional Tax

A tax system where the tax rate remains constant regardless of the amount subject to tax.

Federal Income Tax

A tax levied by the federal government on the annual earnings of individuals, corporations, trusts, and other legal entities.

Medicare Taxes

Taxes withheld from income to fund Medicare, the United States' federal healthcare program for individuals aged 65 and older and some younger people with disabilities.