Martin Wants to Provide Money in His Will for an Annual

question 18

Multiple Choice

Martin wants to provide money in his will for an annual bequest to whichever of his living relatives is oldest.That bequest will provide $1000 in the first year,and will grow by 7% per year,forever.If the interest rate is 11%,how much must Martin provide to fund this bequest?

• A)$9090.91
• B)$14,285.71
• C)$25,000.00
• D)$36,687.45
• E)$5555.56

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Definitions:

Security Market Line

A line that represents the relationship between the risk of an investment and its expected return, based on the capital asset pricing model (CAPM).

Risk-Free Rate

The theoretical rate of return on an investment with no risk of financial loss, often represented by government bonds.

Unsystematic Risk

The type of risk that is specific to a company or industry, stemming from factors like management decisions or regulatory changes, and can be mitigated through diversification.

Limited Number

A restricted quantity, usually referring to a specific allocation or issuance of items, resources, or opportunities.