If the Interest Rate Is 13% and Will Remain 13

question 23

Multiple Choice

If the interest rate is 13% and will remain 13% forever, how much would a rational investor be willing to pay for an asset that will pay him 6,780 dollars 1 year from now, 1,276 dollars 2 years from now, and nothing at any other time?

• A)53,846.15 dollars
• B)6,000 dollars
• C)98,000 dollars
• D)7,000 dollars
• E)8,000 dollars

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Definitions:

Annual Withdrawal

Annual withdrawal often refers to the amount of money an individual elects to take out of an investment or savings account each year, potentially for retirement living expenses.

Trust Fund

A legal arrangement in which assets are held by a third party for the benefit of another party, often used for estate planning and to manage wealth.

Annual Return

The percentage change in investment value over a one-year period, accounting for any dividends or interest received and capital gains or losses.

Retirement Nest Egg

A retirement nest egg is the amount of savings and investments that an individual has accumulated for their retirement years.