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:

Interest Rate

It refers to the profit or cost of borrowing capital, typically expressed as an annual percentage.

Sound Finances

A term describing a stable and healthy financial condition characterized by manageable levels of debt and efficient budgeting.

Long-Term Bond

A long-term bond is a debt security with a maturity period typically longer than 10 years, offering interest payments over an extended time.

Financial System

An intricate network of financial institutions, markets, instruments, and services facilitating the flow of funds and enabling the allocation of resources in an economy.