You Have a Chance to Purchase a Perpetual Security That

question 90

Multiple Choice

You have a chance to purchase a perpetual security that has a stated annual payment (cash flow) of $50.However,this is an unusual security in that the payment will increase at an annual rate of 5 percent per year;this increase is designed to help you keep up with inflation.The next payment to be received (your first payment,due in 1 year) will be $52.50.If your required rate of return is 15 percent,how much should you be willing to pay for this security?

• A) $350
• B) $482
• C) $525
• D) $556
• E) $610

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Definitions:

Impulse Control

The ability to delay gratification and resist unwanted behaviors or urges.

Concrete Operational Skills

Cognitive abilities in children aged 7 to 12, allowing logical thinking about concrete events.

Transitive Influence

The capacity to affect changes in others or situations through direct or indirect action or communication.

Seriation

A type of classification that involves ordering objects in a series according to a physical dimension such as height, weight, or color.