What Would You Be Willing to Pay Today to Receive

question 160

Multiple Choice

What would you be willing to pay today to receive $5,000 at the beginning of each year for the next 10 years if interest is earned at a rate of 8% compounded annually?

• A)$34,656
• B)$36,235
• C)$33,551
• D)$78,228

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Definitions:

Predetermined Price

A specific price set in a contract or agreement, at which a particular transaction (such as buying or selling) will occur in the future.

Expiration Date

The specified date on which an options or futures contract becomes void and ceases to trade.

Agreement

An agreement is a mutual understanding or arrangement between two or more parties, often formalized by a contract, detailing each party's rights and obligations.

Short Hedging

An investment strategy used to offset potential losses in one position by taking an opposite position in a related asset.