Mary Is in Contract Negotiations with a Publishing House for Her

question 41

Multiple Choice

Mary is in contract negotiations with a publishing house for her new novel.She has two options.She may be paid $100,000 up front,and receive royalties that are expected to total $26,000 at the end of each of the next five years.Alternatively,she can receive $200,000 up front and no royalties.Which of the following investment rules would indicate that she should take the former deal,given a discount rate of 8%?

• A)Rule I only
• B)Rule III only
• C)Rules II and III
• D)Rules I and II
• E)Rules I and III

---

Definitions:

Maintenance Margin

The minimum amount of equity that must be maintained in a margin account to avoid a margin call.

Margin Deposit

The initial amount of money placed in a margin account, used as collateral for borrowing money to buy securities on margin.

Single Stock Futures

Futures contracts where the underlying asset is an individual stock, allowing speculation or hedging on the future price of the stock.

Stock Index Futures

Futures contracts based on stock market indices, used by investors to speculate on or hedge against future movements in the market index.