Which of the Following Is Usually Considered a Long-Term Financial

question 22

Multiple Choice

Which of the following is usually considered a long-term financial strategy?

• A) Creating a budget
• B) Using savings to pay off a loan early
• C) Renting an apartment to save for the purchase of a home
• D) Investing in a growth mutual fund to accumulate retirement funds
• E) Purchasing auto insurance to cover the needs of dependents

Understand how interest earned on a sinking fund is accounted for and its effect on financial statements.

Calculate the gain or loss associated with the redemption of bonds.

Know the purpose and benefits of establishing a sinking fund for bond redemption.

Gain knowledge on journalizing transactions related to bonds, including issuance, interest payments, and retirement.

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Definitions:

Forecasting Risk

The potential for actual outcomes to vary significantly from the predictions or expectations due to changes in variables or conditions.

Replacement

The act of substituting a new asset or item for an old or damaged one.

Internal Rate

Often referring to the internal rate of return (IRR), which is the rate of growth a project is expected to generate, calculated as the rate of discount that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Net Present Value

A financial indicator that determines the variance between the current value of incoming and outgoing cash flows during a specific timeframe.