At an Interest Rate of 14%, Approximately How Much Would

question 401

Multiple Choice

At an interest rate of 14%, approximately how much would you need to invest today if you wanted to have $2,000,000 in 10 years? (Ignore income taxes.) Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. (Round your intermediate calculations to 3 decimal places.)

• A) $383,436
• B) $540,000
• C) $740,741
• D) $1,043,200

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Definitions:

Two-Factor Economy

An economic model that considers two distinct factors or variables influencing outcomes, often used in finance to analyze returns or risks.

Expected Return

The average return an investor anticipates receiving on an investment if it is held for a specific period of time.

Risk Premium

The excess return that an investment is expected to generate above the risk-free rate, compensating investors for taking on a higher level of risk.

Arbitrage

The practice of buying an asset in one market and simultaneously selling it in another market at a higher price, thereby profiting from the temporary difference in prices.