What Annual Interest Rate Would You Need to Earn If

question 71

Multiple Choice

What annual interest rate would you need to earn if you wanted a $500 per month contribution to grow to $27,050 in four years?

• A) 2.37 percent
• B) 5.77 percent
• C) 6.00 percent
• D) 13.53 percent

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Definitions:

Big-8 Accounting Firm

Refers to the top eight accounting firms in the United States that dominated the industry until mergers and scandals reduced the number to the Big Four.

Expected Value

The average outcome of a random event when considering all possible outcomes and their probabilities.

Probability

The measure of the likelihood that an event will occur, expressed as a number between 0 and 1, where 0 indicates impossibility and 1 indicates certainty.

Von Neumann-Morgenstern Utility Function

A utility function theory based on expected utility, fundamental in making rational decisions under uncertainty, emphasizing outcomes' probabilities.