Which of the Following Decisions Would Involve the Use of the Future

question 13

Multiple Choice

Which of the following decisions would involve the use of the future value of a $1 ordinary annuity table?

• A) Your brother buys your car and offers to pay you $500 now or $1,500 in two years.
• B) You win a lawsuit and are offered a lump-sum payment today of $100,000 or $15,000 a year for 20 years.
• C) Your father and mother wish to deposit enough money on the date of your high school graduation to enable you to take a $7,000 cruise when you graduate from college in 4 years.
• D) You want to have $1,000,000 in order to retire at age 55, but need to know how much you will need to deposit each year from now until your 55th birthday.

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Definitions:

Negotiability

The attribute of a financial instrument allowing it to be transferred or assigned from one party to another.

Requirements of Negotiability

Legal criteria that an instrument must meet to be considered negotiable, allowing it to be transferred from one party to another.

Certificate of Deposit

A savings certificate with a fixed maturity date and specified fixed interest rate that is issued by a bank and is insured by the Federal Deposit Insurance Corporation (FDIC).

Promissory Note

A written promise to pay a specified amount of money to a designated person or entity by a certain date or on demand.