Which one of Ifw folowdwt betf d#Kft the primary advantage of beinf a limited pa

ID: 2771991 • Letter: W

Question

Which one of Ifw folowdwt betf d#Kft the primary advantage of beinf a limited partner Instead of a general partner ? tax-free income active participation in the firm's activities no potential financial loss greater control over the business affairs of the partnership . maximum loss is limited to the capital invested You are looking to buy a car. The dealership offers you 4 options for a loan. Which is the cheapest? Assume that all payments are direct deposited from your savings account with no charges or fees. APR = 8.95% with payments every second APR = 9.00% with monthly payments APR = 9 03% with quarterly paymentsAPR = 9 2% with payments every year t 2 of these are equivalent to ead) other

Explanation / Answer

Answer-1:

For a limited partner in partnership, the loss of the partnership is limited. But Along with the limited loss the limited partners have limited authorities as well and they do not actively participates in the business of the partnership.

Hence the correct answer should be :E (maximum loss is limited to the capital invested )

Answer-2:

Calculation of Effective annual rate (EAR) for each option :

n= 1 year

APR

Compounding

Calculation

EAR

(1+(ARP/m))^(n*m) -1

8.95%

2 years

0.5

(1+(8.95%/0.5))^(1*0.5) -1

8.58%

Monthly

(1+(9%/12))^(1*12)-1

9.38%

9.03%

Quarterly

(1+(9.03%/4))^(1*4)-1

9.34%

9.20%

Yearly

(1+(9.2%/1))^(1*1)-1

9.20%

The EAR is lower in option A , hence Option A is the cheapest.