The Interest Rate Will Be 10% for One More Year

question 9

Multiple Choice

The interest rate will be 10% for one more year, but a year from now, it will fall to 5% and stay at 5% forever.What is the market value of an investment that is sure to pay $440 a year forever, starting two years from today?

• A)$4,000
• B)$8,800
• C)$4,400
• D)$8,000
• E)$9,000

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Definitions:

Deliberate

Intentionally considering or planning something.

Compensation

Payment or benefits provided to an employee or an individual for services rendered or as reparation for loss.

Negligent

Failing to take proper care in doing something, resulting in damage or harm to another party.

Automobile

A wheeled motor vehicle used for transportation, typically fueled by gasoline, diesel, or electricity.