Refer to the Given Table

question 79

Multiple Choice

$$\begin{array} { | c | c | c | } \hline \text { Year } & \text { Price Level } & \text { Value of Dollar } \\\hline 1 & 1.00 & \$ 1.00 \\\hline 2 & 1.25 & \\\hline 3 & 0.80 & \\\hline 4 & 0.50 & \\\hline\end{array}$$ Refer to the given table. The value of the dollar in year 2 is

• A) $1.25.
• B) $1.33.
• C) $0.80.
• D) $0.75.

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Definitions:

Effective Rate

is the interest rate on a loan or financial product, restated from the nominal rate as an annual rate that may incorporate compounding.

Endowment Fund

A financial endowment given to institutions like universities, museums, and non-profits to invest and use the annual income from investments for operations or programs.

Perpetuity

A financial instrument that pays a steady, never-ending stream of cash flows to the investor.

Compounded Semi-Annually

A method where interest is added to the principal balance of an investment or loan twice a year, leading to compound growth.