If the Interest Rate Is 19% and Will Remain 19

question 15

Multiple Choice

If the interest rate is 19% and will remain 19% forever, how much would a rational investor be willing to pay for an asset that will pay him 2,380 dollars 1 year from now, 1,416 dollars 2 years from now, and nothing at any other time?

• A)2,000 dollars
• B)3,000 dollars
• C)15,789.47 dollars
• D)60,000 dollars
• E)4,000 dollars

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Definitions:

Discounted

The method of calculating the current value of a single payment or a series of future payments.

Interest Periods

Specific intervals of time over which interest is calculated and paid on financial investments or charged on loans.

Rate of Return

The positive or negative return on an investment during a designated period, stated in terms of a percentage of the original investment's expense.

Invest

The act of allocating resources, usually money, in the expectation of generating an income or profit.