If the Risk-Free Rate of Interest (R_f)is 6%,then You Should

question 10

Multiple Choice

If the risk-free rate of interest (r_f) is 6%,then you should be indifferent between receiving $250 today or

• A) $235.85 in one year.
• B) $250.00 in one year.
• C) $265.00 in one year.
• D) none of the above

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Definitions:

Perfection

The state of being free from all flaws or defects, or achieving the highest degree of excellence.

Balloon-Payment Mortgage

A mortgage that has relatively low fixed payments during the life of the mortgage followed by one large final (balloon) payment.

Equity

Fairness or justice as applied in the correction of law or the ownership interest in a company or property.

Unperfected Security Interests

A security interest in collateral that has not been properly filed or recorded, leaving it vulnerable to claims by other creditors.