You Would Like to Deposit a Sum of Money Today

question 33

Multiple Choice

You would like to deposit a sum of money today that would enable you to withdraw $1, 000 a year for five years.If the interest paid on the amount deposited is 10% compounded annually and if the first withdrawal is made one year from today, the formula you would use to determine the amount of the initial deposit is

• A)the present value of a deferred annuity
• B)the present value of an annuity due
• C)the present value of an ordinary annuity
• D)the future value of an ordinary annuity

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Definitions:

Preferred Stock

A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock, often with dividends that are paid out before those of common shares.

Organization Expense

Organization expense refers to the costs associated with forming a business entity, such as legal fees, filing fees, and costs of issuing stock.

Paid in Capital in Excess

Financial capital received from investors above the par value of the shares issued, also known as additional paid-in capital.

Common Stock

Equity ownership in a corporation, giving holders voting rights and a share in the company’s profits through dividends.