Suppose the Interest Rate Is 8 Percent

question 178

Multiple Choice

Suppose the interest rate is 8 percent.Consider three payment options:
1) $200 today.
2) $220 one year from today.
3) $240 two years from today.
Which of the following is correct?

• A)Option 1 has the highest present value and Option 2 has the lowest.
• B)Option 2 has the highest present value and Option 3 has the lowest.
• C)Option 3 has the highest present value and Option 1 has the lowest.
• D)None of the above is correct.

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Definitions:

Progressive Taxation

A tax system where the tax rate increases as the taxable amount or income increases, aiming to distribute the tax burden more equitably among individuals.

Marginal Tax Rate

The percentage of tax applied to your income for each additional dollar of income, essentially the tax rate on the last dollar earned.

Total Tax Rate

The combined rate of all the taxes that an individual or business is liable to pay, expressed as a percentage of income.

Average Tax Rate

The ratio of total taxes paid to total income, indicating the share of income that goes to taxes.