Adam Is Lending $50 000 to a Partnership Being Carried

question 54

Essay

Adam is lending $50 000 to a partnership being carried on by Selma and Jennifer.The arrangement he has with them is that they will pay him back out of their annual profits.Selma and Jennifer will decide how much to pay back out of profits in each year.Interest of 10 percent per year will have to be paid on whatever amount is outstanding after the payment of the profit share in each year.He is content with this rather uncertain arrangement because he does not need the money currently and the 10 percent return is a good rate.In order to protect his investment,he wants Selma and Jennifer to enter into a contract that requires them to continue carrying on the partnership business and to make monthly reports to him.Adam is concerned that he may be considered a partner in the business.Is he? Is there anything he can do to reduce the risk of being found a partner?

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Definitions:

Area

The measure of the extent of a two-dimensional figure or shape in a plane.

Exponential Distribution

A probability distribution used to model the time between events in a Poisson process, describing events that occur continuously and independently.

Waiting Time

The duration of time a person or item spends waiting before a service begins or an event happens.

Degrees of Freedom

The quantity of distinct values or measures that can be attributed to a statistical distribution.