Jeanine Withdrew $10,000 from an Aggressive Growth Mutual Fund, Which

question 21

Multiple Choice

Jeanine withdrew $10,000 from an aggressive growth mutual fund, which returned 9.8% over the last 12 months. The funds were provided in exchange for a promissory note from her son's business to finance its expansion. The business has operated for five years and has no other debt. Inflation has been holding steady at 3.2%. The Canadian dollar, is at $1.015 to $1.00 US. Least risk, government securities are paying out 4.5%. If she believes that 1.5% will cover her risk exposure, what rate is the minimum she should realistically charge her son's business?

• A) 9.8%
• B) 4.5%
• C) 8.2%
• D) 6.0%
• E) 3.2%

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Definitions:

Trade-in Allowance

The value offered by a seller for a buyer's existing asset as part of the payment for a new asset.

Accumulated Depreciation

The total amount of an asset's cost that has been allocated as depreciation expense over the asset's useful life.

Cost Basis

The original value or purchase price of an asset or investment for tax purposes, adjusted for stock splits, dividends, and return of capital distributions.

Trade-in

A transaction where an item is exchanged as part of the payment for a new item, often used in car purchases to trade an old vehicle towards the price of a new one.