Items 69 Through 72 Apply to the Appropriate Use of Present

question 89

Multiple Choice

Items 69 through 72 apply to the appropriate use of present value tables. Given below are the present value factors for $1.00 discounted at 10% for one to five periods. Each of the items 69 to 72 is based on 10% interest compounded annually.

-What amount should an individual have in a bank account today before withdrawal if $7,000 is needed each year for four years with the first withdrawal to be made today and each subsequent withdrawal at one-year intervals? (The balance in the bank account should be zero after the fourth withdrawal.)

• A) $7,000 + ($7,000 × 0.909) + ($7,000 × 0.826) + ($7,000 × 0.751)
• B) $7,000 ÷ 0.683 × 4
• C) ($7,000 × 0.909) + ($7,000 × 0.826) + ($7,000 × 0.751) + ($7,000 × 0.683)
• D) $7,000 ÷ 0.909 × 4

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Definitions:

Price

The amount of money required to purchase a good or service, acting as a signal to both buyers and sellers in the market.

Quantity

The amount or number of a material or immaterial good that is measured or counted.

Market Price

The price at which goods and services are currently being sold in the market, influenced by supply and demand.

Equilibrium Price

The price point in the market at which the amount of goods being offered is equal to the amount of goods being sought.