Suppose Annie Expects an Annual Return of $520 from an Investment

question 69

Multiple Choice

Suppose Annie expects an annual return of $520 from an investment worth $500.What should be the rate of interest charged by her to a risky borrower who is likely to repay the principal and interest with a probability of 0.7?

• A)45 percent
• B)48.6 percent
• C)20.33 percent
• D)53.4 percent

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Definitions:

Pension Asset

An asset on the balance sheet, representing the company's surplus or prepaid contributions in its pension fund.

Journal Entries

Journal entries are the formal accounting record of financial transactions in the order they occur in a company’s financial system.

Pension Expense

The annual cost recognized by an employer for the benefits earned by employees in the employer-sponsored pension plan during the year.

Deferred Gain

A gain resulting from a business transaction that is recognized in financial statements in a period subsequent to the transaction.