I Sign a Contract That Guarantees Me an Immediate Payment

question 32

Multiple Choice

I sign a contract that guarantees me an immediate payment of $2 000, but then I have to invest $800 a year for ten years. At the end of the tenth year I get a further payment of $8 000. What is my internal rate of return on the contract?

• A)There are two solutions: 8% and 16%.
• B)There are two solutions: 13% and 25%.
• C)There are two solutions, 15% and 30%.
• D)There are two solutions: 18% and 24%.
• E)There is a single solution: about 22%.

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Definitions:

Stock Dividends Distributable

Shares that are to be given to shareholders as dividends, which have been declared by a company’s board but have not yet been distributed.

Equity Account

An account representing the owner's or shareholders' residual interest in the assets of the entity after deducting liabilities.

Stockholders

Stockholders are individuals or entities that own shares of stock in a corporation, thereby holding ownership interests and potentially benefiting from the company's profitability through dividends and stock price appreciation.

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, often providing dividends before common shares.