In Answering Which of the Following Questions Would You Find

question 206

Multiple Choice

In answering which of the following questions would you find it necessary to calculate a future value?

• A)If Jill puts $5,000 today into a bank account that pays 3 percent interest,then how much will she have in the account after 2 years?
• B)Should ABC Corporation buy a factory today for $2 million,knowing that the factory will yield the corporation $3 million after 5 years?
• C)As the winner of a lottery,should Michael choose an immediate payment of $250,000 or should he choose annual payments of $30,000 for each of the next 10 years?
• D)You would find it necessary to calculate a future value in order to answer all of these questions.

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Definitions:

Cost of Equity

The return that investors expect for investing in a company's equity, usually considered in the form of dividends and share price appreciation.

Cost of Debt

The effective rate that a company pays on its total debt, factoring in interest payments, fees, and other costs associated with borrowing.

Stock Price

The cost of purchasing a share of a company's stock, reflecting what investors are willing to pay based on their expectations of future company performance.

Personal Taxes

Taxes levied on individuals or households based on their income, property, and consumption, which contribute to federal, state, or municipal revenues.