According to the Permanent-Income Theory, Which of the Following Would

question 16

Multiple Choice

According to the permanent-income theory, which of the following would have the greatest impact on the current consumption of a 45 year-old tenured college professor?

• A)a promotion to full professor combined with a $5,000 raise
• B)a $5,100 advance payment for a book that will take two years to write
• C)winning $5,200 in the Reader's Digest Sweepstakes
• D)a loss of a stamp collection worth $5,400
• E)an inheritance of $5,500 from a distant uncle

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Definitions:

Interest Due

The amount of interest payment required to be paid on a loan or debt at a specified date.

Maturity Value

The amount that will be received at the maturity date of a financial instrument, typically including the principal and the interest.

Note Receivable

A financial asset representing a written promise to receive a specific amount of money, plus interest, from another party at a future date.

Interest Due

The amount of interest that has accumulated on borrowed funds or investments that is payable to the lender or investor.