You Are Considering an Investment in a 40-Year Security

question 58

Multiple Choice

You are considering an investment in a 40-year security.The security will pay $25 a year at the end of each of the first three years.The security will then pay $30 a year at the end of each of the next 20 years.The simple interest rate is assumed to be 8 percent,and the current price (present value) of the security is $360.39.Given this information,what is the equal annual payment to be received from Year 24 through Year 40 (i.e. ,for 17 years) ?

• A) $35
• B) $38
• C) $40
• D) $45
• E) $50

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Definitions:

Inventory Accounts

Accounts used to track the quantity and value of products a company holds for the purpose of sale, broken down into categories like raw materials, work-in-progress, and finished goods.

Manufacturing Firm

A company that produces goods through the process of raw materials using labor and machinery.

Cost Accounting Systems

Methods and procedures used for collecting, classifying, summarizing, and analyzing a company's costs to help in budgeting, controlling, and decision-making.

Product Costs

Direct costs associated with the production of goods sold by a company, including direct materials, direct labor, and manufacturing overhead.