It Is January 1st and Darwin Davis Has Just Established

question 13

Multiple Choice

It is January 1st and Darwin Davis has just established an IRA (Individual Retirement Account) . Darwin will put $1,000 into the account on December 31st of this year and at the end of each year for the following 39 years (40 years total) . How much money will Darwin have in his account at the beginning of the 41st year? Assume that the account pays 12% interest compounded annually, and round to the nearest $1,000.

• A) $93,000
• B) $766,000
• C) $767,000
• D) $850,000

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Definitions:

Static Theory

Static Theory refers to economic theories or models that do not account for changes in the economy over time, analyzing a fixed point instead.

Interest Tax Shield

The decrease in income tax owed that occurs when interest payments on borrowed funds are subtracted from taxable income.

Coupon Rate

The annual interest rate paid on a bond, expressed as a percentage of the bond's face value, generating regular income for investors.