Investors Al and Bea Lend $100,000 to Each New Idea

question 41

Multiple Choice

Investors Al and Bea lend $100,000 to each new idea.Al's history is that he selects low-risk projects or ideas that hit 80% of the time.Bea's history is that she takes on high-risk projects that hit 40% of the time.What rate of return must each successful project pay Al and Bea for them to break even?

• A)Al's rate is 150%,and Bea's rate is 25%.
• B)Al's rate is 40%,and Bea's rate is 40%.
• C)Al's rate is 25%,and Bea's rate is 150%.
• D)Al's rate is 30%,and Bea's rate is 150%.

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Definitions:

Discount on Bonds

The difference between the bond's face value and its selling price when the bond is sold for less than its face value.

Financing Activities

Financing activities are transactions between a company and its creditors or investors, including issuing equity, borrowing money, and repaying loans, reflected in the cash flows statement.

Cash Flow

The aggregate sum of funds moving in and out of a company, particularly influencing its liquidity.

Common Stock

Equity security that represents ownership in a corporation, entitling the owner to vote at shareholders' meetings and to receive dividends.