You Have a Sub-Contracting Job with a Local Manufacturing Firm

question 5

Multiple Choice

You have a sub-contracting job with a local manufacturing firm. Your agreement calls for annual payments of $50,000 for the next five years. At a discount rate of 12%,what is this job worth to you today?

• A) $180,238.81
• B) $201,867.47
• C) $210,618.19
• D) $223,162.58
• E) $224,267.10

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Definitions:

Continuous Compounding

The mathematical limit that compound interest can reach if it’s computed and added to the principal balance continuously, leading to exponential growth.

Time Value

Time Value refers to the additional amount that an investor is willing to pay for an option or other financial instrument due to its potential to increase in value over time.

Time Value

The portion of an option's premium that is based on the amount of time until the expiration of the option contract.

Volatility

Refers to the degree of variation in the price of a financial instrument over time, indicating the risk associated with the price changes of that instrument.