If the Interest Rate Is R and Will Remain R

question 16

Multiple Choice

If the interest rate is r and will remain r forever, then a bond that will pay 75 dollars a year forever, starting one year from now, is worth how much today?

• A)75/(1 + r)dollars.
• B)75(1 + r)dollars.
• C)75/(1 + r + r² +.......+ r ⁿ +.......)dollars.
• D)75/r dollars.
• E)None of the above.

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Definitions:

Gross Margin

The difference between sales revenue and the cost of goods sold, expressed as a percentage of sales revenue, indicating the efficiency of a company in managing its production and labor costs.

Net Operating Income

A company's revenue minus its operating expenses, excluding taxes and interest, providing a measure of profitability from its core business activities.

Variable Costing

An accounting method in which variable production costs are included in product costs, while fixed overhead costs are treated as period expenses.

Common Fixed Expense

Overhead costs that are not directly attributed to a specific product or service but are shared across multiple business segments.