You Are Considering an Investment in a 40-Year Security

question 58

Multiple Choice

You are considering an investment in a 40-year security.The security will pay $25 a year at the end of each of the first three years.The security will then pay $30 a year at the end of each of the next 20 years.The simple interest rate is assumed to be 8 percent,and the current price (present value) of the security is $360.39.Given this information,what is the equal annual payment to be received from Year 24 through Year 40 (i.e. ,for 17 years) ?

• A) $35
• B) $38
• C) $40
• D) $45
• E) $50

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Definitions:

Prospectus Supplement

A document that provides additional information to a prospectus, detailing specifics about an investment offering for potential investors.

Tender Offer

The offer of one firm to buy the stock of another by going directly to the shareholders, frequently over the opposition of the target company’s management.

Private Placement

Private Placement is a method of raising capital through the sale of securities to a relatively small number of select investors rather than through a public offering.

Management Team

The group of individuals at the top level of an organization who are responsible for executing the strategic plans and policies to achieve its goals and objectives.