You Have Just Won a Magazine Sweepstakes and Have a Choice

question 87

Multiple Choice

You have just won a magazine sweepstakes and have a choice of three alternatives.You can get $100 000 now, or $10 000 per year in perpetuity, or $50 000 now and $150 000 at the end of 10 years.If the appropriate discount rate is 12%, which option should you choose?

• A)$100 000 now
• B)$10 000 perpetuity
• C)$50 000 now and $150 000 in 10 years
• D)$5000 perpetuity

Realize the importance of timely and unbiased financial reporting in decision-making processes.

Comprehend the application of analytic review procedures in evaluating financial information.

Understand the significance of fundamental analysis in estimating company value.

Acknowledge the function of financial reports in executive performance evaluation and stewardship.

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Definitions:

Downside Risk

The potential loss that could occur in an investment due to adverse price movements.

Geometric Average Return

A method for calculating the average rate of return on an investment, which accounts for the effects of compound interest.

Rates of Return

The gains or losses on an investment over a specified period, expressed as a percentage of the investment's cost.

Normal Distribution

A bell-shaped frequency distribution curve that is symmetrical about the mean, showing how data points, like stock returns, are dispersed or spread out.