Assume That You Inherited Some Money

question 61

Multiple Choice

Assume that you inherited some money.A friend of yours is working as an unpaid intern at a local brokerage firm,and her boss is selling some securities which call for four payments,$50 at the end of each of the next 3 years,plus a payment of $1,050 at the end of Year 4.Your friend says she can get you some of these securities at a cost of $900 each.Your money is now invested in a bank that pays an 8 percent simple (quoted) interest rate,but with quarterly compounding.You regard the securities as being just as safe,and as liquid,as your bank deposit,so your required effective annual rate of return on the securities is the same as that on your bank deposit.You must calculate the value of the securities to decide whether they are a good investment.What is their present value to you?

• A) $1,000
• B) $866
• C) $1,050
• D) $901
• E) $893

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Definitions:

Rent in Advance

Payment for rent that is made before the rental period begins, usually as a requirement by landlords before tenants occupy the property.

Adjusting Entry

An accounting record created at the closing of an accounting cycle to assign revenues and expenses to the relevant fiscal years.

Asset Account

An account that represents a resource owned or controlled by a business, expected to provide future economic benefits.

Net Loss

The amount by which a company's expenses exceed its revenues during a specific period, indicating a negative financial performance.