Scenario 14-3 Victor Is the Recipient of $1 Million from a Lawsuit

question 180

Multiple Choice

Scenario 14-3
Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year.
-Refer to Scenario 14-3. What is Victor's opportunity costs of operating his new business?

• A)$25,000
• B)$75,000
• C)$100,000
• D)$175,000

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Definitions:

Coupon Rate

The interest rate that a bond issuer will pay to a bondholder, typically expressed as an annual percentage of the face value of the bond.

Interest Rates

The percentage of an amount of money charged for its use per period, commonly expressed as an annual percentage rate.

Bond Investing

The act of investing in bonds, which are debt securities, with the expectation of earning a return from interest payments and potential price appreciation.

Annual Coupon Payment

The yearly amount paid to a bondholder, usually based on the bond's face value and its stated interest rate.