Which of the Following Decisions Would Involve the Use of the Future

question 34

Multiple Choice

Which of the following decisions would involve the use of the future value of a $1 ordinary annuity table?

• A) Your brother buys your car and offers to pay you $500 now or $1,500 in two years.
• B) You win a lawsuit and are offered a lump-sum payment today of $100,000 or $15,000 a year for 20 years.
• C) Your father and mother wish to deposit enough money on the date of your high school graduation to enable you to take a cruise that will cost $7,000 when you graduate from college in 4 years.
• D) You want to have $1,000,000 in order to retire at age 55, but need to know how much you will need to deposit each year from now until your 55th birthday.

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Definitions:

Dividend Payments

Cash or stock distributed by a company to its shareholders out of its profits or reserves.

Signaling

The act of using information to convey a message about the quality or desirability of a product, service, or investment, often in situations where there is asymmetric information.

Dividend Policy

A company's approach to distributing profits to its shareholders, determining the size and timing of dividend payments.

Common Stock

A type of equity investment representing ownership in a corporation, with holders entitled to vote on corporate issues and receive dividends.