The Accounting Rate of Return

question 21

Multiple Choice

The accounting rate of return:

• A) uses net cash flows.
• B) does not take into account the time value of money.
• C) uses an objectively determined hurdle rate.
• D) all of the above.

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Definitions:

Whole Life Insurance

A type of insurance that combines a life insurance policy with an investment feature; policyholders pay a premium that is divided between the insurance portion and the investment portion.

Cash Value

The value of the investment portion of a whole life insurance policy.

S&P 500

A stock market index that measures the stock performance of 500 of the largest companies listed on stock exchanges in the United States.

Pre-Tax Retirement Account

A savings account designed for retirement that allows individuals to contribute pre-tax income, with taxes deferred until withdrawal.