Determine How Much You Would Be Willing to Pay for a Security

question 32

Multiple Choice

Determine how much you would be willing to pay for a security that pays $60 annually indefinitely (a perpetuity) , assuming you require an 8 percent return on this investment.

• A)$480
• B)$743
• C)$1,000
• D)$750

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Definitions:

Cost Of Capital

The essential return rate an enterprise has to produce on its investment activities to sustain its market assessment and appeal to investors.

Cost Of Capital

The essential profit ratio a company is expected to reach in its investing endeavors to keep its marketplace value and attract financial backers.

Securities

Financial instruments that represent an ownership position in a publicly-traded corporation (stock), a creditor relationship with a governmental body or a corporation (bond), or rights to ownership as represented by an option.

Risk Level

The degree of uncertainty and/or potential financial loss inherent in an investment decision.