At what annual rate would $500 grow to $1,948 in 12 years? (Note—Solve as a present value problem.)
A) 12.0 %
B) 13.0 %
C) 12.5 %
D) 11.0 %
Answer: A
Explanation: A) Note—This problem can be solved using either the Future or the Present Value tables.
Solved as Future Value - $1,948/500 = 3.896 (Exhibit 3.1)—look up on 12 year line
Solved as Present Value - $500/$1,948 = 0.257 (Exhibit 3.2)—look up on 12 year line (12.0 percent)
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Which of the following statements regarding the use of retention is (are) true?
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