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Ethical Dilemma. Shortly after Steve graduated from college, he considered a whole life insurance policy that would provide $10,000 in life insurance protection and accumulate a cash value of twice his current annual income by age 65. Two years later, after Steve's marriage, he bought a second policy. Through his working years he paid the $280 annual premium per policy. Steve kept remembering what the agent had told him many years before about each policy having a cash value double his annual income. Steve was nearing age 65 and dug out the policies from his safety deposit box so that he could begin to put numbers together to plan his retirement.
As he opened the two policies, he was appalled to see that the cash value on the older policy was $17,000 and on the newer policy was only $15,000. The two policies together amounted to only one third his current annual earnings, far from the figure promised him by the agent.
a. Was the agent being unethical in not showing Steve the potential impact of inflation on the policies' cash value?
b. Taking just the first policy, would Steve have been better off to invest the $280 annual premium in a mutual fund that would have given an annual return of 8% per year (assume a 30-year investment period)?
A floating rate bond is generally considered safer than a fixed coupon bond in terms of inflation risk. If a firm collects an account receivable, its cash ratio will rise. The federal funds market is a market in which commercial banks may buy or sell..
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Ornsby worked for seven years at the Hunter House, a non-profit residential group home for the developmentally disabled located in Osage City, Kansas. He worked eight hours per day, Monday to Friday, and was paid for a regular forty-hour work week.
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A property is sold for $5,100,000 with selling costs of 3% of the sales price. The mortgage balance at the time of sale is $3,600,000. The property was purchased 5 years ago for $4,820,000. Annual depreciation allowances of $153,016 have been taken. ..
Suppose Powers Ltd. just issued a dividend of $2.51 per share on its common stock. The company paid dividends of $2.01, $2.08, $2.25, and $2.35 per share in the last four years. Required: If the stock currently sells for $70, what is your best estima..
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Assume that you have received a capital expenditure request for $52,000 for plant equipment and that you are required to do a justification analysis using capital budgeting techniques. The company’s cost of capital is 12% and the equipment (investmen..
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