You Decide to Save for Retirement by Investing $10,000 a Year

question 60

Multiple Choice

You decide to save for retirement by investing $10,000 a year in an account that will earn a 6% annual rate of return.How much will you have in the account when you retire in 45 years?

• A)$450,000
• B)$3,277,222
• C)$2,127,435
• D)$1,256,743

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Definitions:

Weighted Average Cost of Capital (WACC)

A calculation of a firm's cost of capital in which each category of capital is proportionately weighted, reflecting the expected cost of all sources of capital, including debt and equity.

Flotation Costs

Expenses incurred by a company in issuing new securities, typically including fees for underwriting, legal, registration, and other associated costs.

Debt-to-Assets Ratio

A leverage ratio that calculates the total amount of debt relative to the total amount of assets, indicating how much of the company's assets are funded by debt.

Cost of Equity

The rate of return that a company theoretically pays to its equity investors to compensate for the risk they undertake by investing in the company.