Christian Quit His Job to Open His Own Online Consulting

question 162

Multiple Choice

Christian quit his job to open his own online consulting business. He now realizes that he no longer has the benefit of a corporate retirement system. He should consider investing in a(n)

• A) simple 401(k) plan.
• B) simple IRA plan.
• C) automated trust account.
• D) Keogh plan.

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Definitions:

Certainty Equivalent Approach

A method to evaluate risk where uncertain future cash flows are converted into certain cash flows under the assumption of risk neutrality.

Risk-Free Rate

The interest rate excluding all risk premiums. The risk-free rate consists of the pure rate and an inflation adjustment. It is approximated by the three-month treasury bill rate. Written as kRF.

Real Option

The value of additional decision-making opportunities available to an investor or company once an initial investment has been made.

Financial Results

The summary of a company's financial performance and position, typically reported on a quarterly and annual basis.