Two Reasons Why the Social Security System Nearly Went Bankrupt

question 121

Multiple Choice

Two reasons why the Social Security system nearly went bankrupt in the early 1980s are: (i) wages were indexed but benefits were not; (ii) the percentage of elderly people in the country declined.

• A)i and ii 
• B)i but not ii 
• C)ii but not i 
• D)neither i nor ii

Determine the market dynamics affecting bond prices, including interest rates.

Understand the accounting for callable bonds and bond redemption.

Apply the effective interest method for amortizing bond discounts and premiums.

Understand and calculate the times interest earned ratio.

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Definitions:

10% Rate

A specified interest rate or rate of return set at 10%, used for calculations involving financial transactions.

7% Rate

An interest or return rate of seven percent, often referring to the annual percentage rate received by an investment or charged on a loan.

ROE

Return on Equity is a financial performance metric that is calculated by dividing a company's net income by its shareholders' equity.

Du Pont Identity

A formula that breaks down Return on Equity (ROE) into three components: operating efficiency, asset use efficiency, and financial leverage.