You Are Considering an Investment in a 40-Year Security

question 58

Multiple Choice

You are considering an investment in a 40-year security.The security will pay $25 a year at the end of each of the first three years.The security will then pay $30 a year at the end of each of the next 20 years.The simple interest rate is assumed to be 8 percent,and the current price (present value) of the security is $360.39.Given this information,what is the equal annual payment to be received from Year 24 through Year 40 (i.e. ,for 17 years) ?

• A) $35
• B) $38
• C) $40
• D) $45
• E) $50

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Definitions:

Breaches Contract

A violation or infringement of the terms and conditions stated in a contract by any of the parties involved, leading to a breach of contract.

Profit on Resale

The financial gain obtained from selling an asset for more than its purchase price.

Substitute Goods

Products or services that can be used in place of one another, often influencing consumer choice.

Contract Price

The total agreed upon price specified in a contract that one party will pay to another for goods or services.