Mirtha Mudflat Has Sufficient Funds to Choose One of Two

question 4

Multiple Choice

Mirtha Mudflat has sufficient funds to choose one of two investments. The same amount will be invested in either case. Choice one: ten year $100,000 5% Treasury bonds issued to yield 4% per annum, the market rate. Choice two: a risky bond of the same amount that has expected cash flows of $9,000 per year for the same period. What is the risk premium that makes Mirtha indifferent between the two investments?

• A)7.80%
• B)5.66%
• C)3.80%
• D)5.00%
• E)None of the above

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Definitions:

Aggressive Drives

Innate impulses or tendencies within an individual that lead to aggressive behaviors or attitudes.

Melanie Klein

A psychoanalyst known for her work in child psychology and psychoanalytic theory, particularly regarding object relations theory.

Object Relations Theory

A psychoanalytic theory focusing on relationships and the impact of early interactions with caregivers on psychological development.

Spatial Relationships

The concept of how objects or shapes are located in relation to each other in space.