Suppose that you purchase a $5,000 bond that pays 7 percent interest annually and matures in five years. If you expect that the inflation rate during the next five years will be 2 percent annually, what real rate of return do you expect to earn?
a. 2 percent
b. 5 percent
c. 7 percent
d. 9 percent
B
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Assume the retiree had a third option: receive a lump sum of $750,000 five years from now. If the interest rate is 4 percent, approximately how much is the future $750,000 to be received in 5 years worth today?
A) $586,445 B) $616,445 C) $630,000 D) $646,555 Scenario 12.1: Jennifer has decided to give up her pack-a-day smoking habit and invest the money she would have spent on cigarettes in a retirement account. At $6.00 a pack, Jennifer is currently spending $2,190 per year on cigarettes. Jennifer is 25 years old and plans to retire in 35 years, at age 60. She has chosen a retirement account that will earn a long-term average return of 5 percent per year. Jennifer is currently earning $40,000 annually. Assume that the average annual inflation rate will be 5 percent per year, that the cost of cigarettes will increase with inflation, and that Jennifer's income will also rise with the inflation rate.
In the above table, the inflation rate between 2014 and 2015 is approximately
A) 10 percent. B) 11 percent. C) 121 percent. D) None of the above answers is correct.
Refer to Figure 14-5. If Netflix lowers its price, will this deter Spotify from setting up a streaming video service?
A) no, because Spotify will make a larger profit than Netflix if it chooses to compete B) yes, because Spotify stands to lose $1 million if it competes with Netflix C) no, because Spotify will make a profit if it competes with Netflix D) yes, because Spotify will make a smaller profit than Netflix if it chooses to compete
Stockholders have limited liability for the acts of the corporation for which they hold stock.
A. True B. False C. Uncertain