Solve the Problem

question 17

Multiple Choice

Solve the problem. Refer to the table if necessary.
-Greg plans to contribute $500 per year to a retirement plan and is debating the use of a certificate of deposit that pays 2% per year versus a stock fund that he believes will yield 6% per year. Find the future value after 15 years of the CD and the stock fund.

• A)CD: $8,646.71 Stock fund: $11,637.99
• B)CD: $8,646.71 Stock fund: $13,576.06
• C)CD: $7,986.97 Stock fund: $11,637.99
• D)CD: $8,341.07 Stock fund: $10,789.28

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Definitions:

Indirect Method

A technique for preparing the cash flow statement where adjustments are made to net income to convert it from an accrual basis to a cash basis.

Cash Flows

The total amount of money being transferred into and out of a business, particularly affecting liquidity.

Cash Dividend

A distribution of a portion of a company's earnings, typically in cash, to its stockholders as a share of the profits.

Long-term Investments

Assets purchased by a company that are intended to be held for more than one year, typically including stocks, bonds, or real estate.