Which of the Following Statements Is Correct for an Investor

question 12

Multiple Choice

Which of the following statements is correct for an investor starting with $1,000 in common stocks over a 20-year investment horizon in which stocks averaged 11 percent in nominal terms and 4 percent in real terms? The portfolio value is now approximately:

• A)$1,800 in real terms
• B)$3,679 in real terms
• C)$3,870 in nominal terms
• D)$8,062 in nominal terms FV = $1,000(1.11)²⁰
• = 1,000 (8.06231)
• = 8,062.31
• FV = $1,000(1.04)²⁰
• = 1,000(2.19112)

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Definitions:

Illegal Contracts

Agreements that are void and unenforceable by law because they involve activities that are illegal.

Rescinds

The act of revoking, canceling, or annulling a contract or agreement.

Consideration

An item of value traded between entities within an agreement to make the contract enforceable by law.

Adhesion

A contract or agreement created by one party with significant power over the other, often leading to a lack of negotiation for the weaker party.