What Is the Minimum Number of Years That an Investment

question 78

Multiple Choice

What is the minimum number of years that an investment costing $500,000 must return $65,000 per year at a discount rate of 13 percent in order to be an acceptable investment?

• A)8.69 years
• B)14.00 years
• C)27.51 years
• D)An infinite number of years NPV = (65,000/.13) - $500,000
• NPV = 500,000 - 500,000

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Definitions:

Time Deposits

Time Deposits are savings accounts or certificates of deposit (CDs) that lock the depositor's funds for a certain period of time, during which early withdrawal incurs penalties.

Reserve Requirements

The portion of depositors' balances that banks must have on hand as cash, mandated by central banking authorities.

Treasury Bills

Short-term government securities issued with a promise to be paid back at a specified future date with a fixed interest rate.

Federal Reserve District Bank

A regional bank of the Federal Reserve System, overseeing banks within a specific district and participating in monetary policy to help regulate the economy.