You Have a Chance to Purchase a Perpetual Security That

question 90

Multiple Choice

You have a chance to purchase a perpetual security that has a stated annual payment (cash flow) of $50.However,this is an unusual security in that the payment will increase at an annual rate of 5 percent per year;this increase is designed to help you keep up with inflation.The next payment to be received (your first payment,due in 1 year) will be $52.50.If your required rate of return is 15 percent,how much should you be willing to pay for this security?

• A) $350
• B) $482
• C) $525
• D) $556
• E) $610

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Definitions:

Autosuggestion

A psychological technique that involves self-induced suggestions and affirmations to change behavior or improve wellbeing.

Hypnosis

A state of heightened suggestibility, characterized by deep relaxation and focused attention, where an individual can be more easily influenced by the hypnotist.

Psychotherapy

A general term for treating mental health problems by talking with a psychiatrist, psychologist, or other mental health provider.

Everyday Life

The daily activities, experiences, and routines that constitute a person's normal and routine existence.