When Lucian Starts His New Job, He Is Given the Option

question 171

Multiple Choice

When Lucian starts his new job, he is given the option to contribute to his retirement fund, which the company will match up to 5 percent of his base salary. Lucian knows he can afford to contribute to his retirement fund; he only needs to file a form to activate the contributions and matching. According to prospect theory, if Lucian is typical in his behavior, we would expect him to

• A)take full advantage of the matching contribution because that would maximize his financial well-being.
• B)not file the form to start the contribution and match.
• C)negotiate with his boss for a higher match in order to increase his returns.
• D)only start contributions if the retirement portfolio is heavily weighted in high-return assets.

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Definitions:

Lessee

An entity or individual that leases an asset from another, the lessor, under the terms of a lease agreement.

Lease Payments

Regular payments made by a lessee to a lessor for the use of an asset or property.

Discount Rate

is the interest rate used in discounted cash flow analysis to present value future cash flows, affecting the attractiveness of an investment.

Lease Versus Buy

A decision-making process in finance that compares the costs and benefits of leasing an asset versus purchasing it outright.