You Are Considering Investing in a Third World Bank Account

question 78

Multiple Choice

You are considering investing in a Third World bank account that pays a nominal annual rate of 18%, compounded MONTHLY. If you invest $5,000 at the BEGINNING of each month, how many months will it take for your account to grow to $250,000? Round fractional years up.

• A) 23
• B) 27
• C) 32
• D) 38

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Definitions:

Risk Free Interest Rate

The rate of return on an investment with zero risk of financial loss, typically based on government bonds.

Exercise Price

The price at which the underlying security can be purchased (call option) or sold (put option) when exercising an option contract, synonymous with striking price.

European Put Option

A type of put option that can only be exercised at its expiration date, not before, contrasting with American options which can be exercised at any time before expiry.