Suppose an Investment Is Expected to Generate Income at the Rate

question 17

Multiple Choice

Suppose an investment is expected to generate income at the rate of dollars/year for the next 6 years.Find the present value of this investment if the prevailing interest rate is 8% / year compounded continuously.Round your answer to the nearest dollar.

• A)$950,930
• B)$953,042
• C)$951,802
• D)$957,375

---

Definitions:

Interest

The cost that creditors charge for use of their capital.

Moral Hazard

The risk that one party to an agreement can change their behavior to the detriment of another after the transaction has taken place, often due to asymmetrical information.

Bonded

indicates a state of being secured by a bond, involving a financial guarantee or protection against losses.

Shirking

The act of avoiding or neglecting responsibilities, especially in the workplace, leading to reduced productivity or performance.