Consider the Simplified Payment System for the Victims of 9/11

question 104

Multiple Choice

Consider the simplified payment system for the victims of 9/11:
• The family of a 65-year-old service worker earning $10,000 a year receives $300,000 in compensation.
• The family of a 30-year-old bond trader earning $175,000 a year receives $4.35 million.
Which statement most accurately describes the difference in the payments between the service worker and the bond trader?

• A) The present value of the bond trader's lifetime income is greater than the service worker's.
• B) Because of her age, the bond trader had less savings to rely on, so her family received more compensation.
• C) The future value of the bond trader's lifetime income is less than the service worker's.
• D) Such a discrepancy in compensation would never be the case.
• E) None of these answers are correct.

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Definitions:

Macroeconomic Factor

A variable that impacts the economy at a large scale, influencing economic outcomes like growth rates, unemployment, and inflation.

Single-Index Model

The Single-Index Model is a streamlined method to evaluate the return of a security or portfolio understanding its sensitivity to movements in a common market index.

Risk-Free Rate

The theoretical rate of return on an investment with zero risk of financial loss, typically associated with government bonds.

Market Index

A statistical measure that represents the performance of a group of stocks, bonds, or other assets, serving as a benchmark to track financial and economic performance.