For Which of the Following Transactions Would the Use of the Present

question 84

Multiple Choice

For which of the following transactions would the use of the present value of an ordinary annuity concept be appropriate in calculating the present value of the asset obtained or the liability owed at the date of incurrence?

• A) A capital lease is entered into with the initial lease payment due one month subsequent to the signing of the lease agreement.
• B) A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement.
• C) A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 2 and July 1 yielding 7%.
• D) A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 2 and July 1 yielding 9%.

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Definitions:

Behavioral Economics

A field of economics that studies how psychological, social, cognitive, and emotional factors influence economic decisions of individuals and institutions.

Stock Portfolio

A collection of stocks that an individual or institution holds, representing investments across one or more types of stock, sectors, or industries.

Positive Utility

The benefit or satisfaction gained from the consumption of goods or services that contribute to an individual's well-being and happiness.

Availability Heuristic

A mental shortcut that relies on immediate examples that come to mind when evaluating a specific topic, concept, method, or decision, which can lead to biases.