You Are Considering Two Savings Options

question 51

Multiple Choice

You are considering two savings options.Both options offer a 7.4 percent rate of return.The first option is to save $900,$1,500,and $3,000 at the end of each year for the next three years,respectively.The other option is to save one lump sum amount today.If you want to have the same balance in your savings account at the end of the three years,regardless of the savings method you select,how much do you need to save today if you select the lump sum option?

• A)$3,410
• B)$3,530
• C)$3,600
• D)$4,560
• E)$4,780

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Definitions:

Par Common Stock

Common stock issued with a nominal value per share, which represents the minimum legal capital that must be paid per share.

Stockholders' Equity

The residual interest in the assets of a corporation after deducting its liabilities, representing the ownership interest of shareholders.

Retained Earnings

The amount of net earnings remaining for the company after distributing dividends to its shareholders.

Issue Price

The price at which new or existing securities are offered for sale to the public or the primary market.