If the Current Rate of Interest Is 8%, Then the Present

question 25

Multiple Choice

If the current rate of interest is 8%, then the present value (PV) of an investment that pays $1 000 per year and lasts 20 years is closest to:

• A)$18 519
• B)$9 818
• C)$45 761
• D)$20 000

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Definitions:

Myopic Loss Aversion

A behavioral finance theory suggesting investors' tendency to avoid investments with potential losses, leading to an overly cautious investment strategy.

Recency Bias

The tendency to weigh recent events more heavily than earlier events when making decisions.

Representativeness Heuristic

The representativeness heuristic is a mental shortcut people use to classify something based on how similar it is to a typical case.

Endowment Effect

A cognitive bias that causes individuals to value an owned object higher than it would be valued if it were not owned.