I Am Promised a Payment of $250 a Year from Now

question 26

Multiple Choice

I am promised a payment of $250 a year from now, repeating every year for a total of ten years. I can invest money at 10% interest, but the inflation rate over the next ten years is expected to be 5%. What is the smallest amount of money you could offer me right now that would persuade me to give up these payments?

• A)250(P/A,0.05,10)
• B)250(P/A,0.15,10)
• C)250(A/P,0.1,10)
• D)250(P/A,0.155,10)
• E)250(P/A,0.165,10)

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Definitions:

Authority decisions

Decisions made by individuals or bodies who hold power or authority in an organization or group.

Individual decisions

Choices or judgments made by a single person based on personal judgment, beliefs, and attitudes.

Consultative

A leadership or decision-making style that involves seeking input or feedback from others before making a final decision.

Representativeness heuristic

A cognitive shortcut used when making judgments about the probability of an event under uncertainty, based on how similar it is to a typical case.