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    5 Percent. 1 Percent. 3 Percent. 2 Percent. 7 Percent

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    AliceJohn
    To induce lending with expected 2% inflation, the nominal interest rate must be 3%. An individual earned a 4% nominal return last year, prices increased 3%, with 28% federal and 6% state/local taxes, the real after-tax return was 0.72%. Municipal bonds pay interest exempt from federal taxes. An investor earning a 5% nominal risk-free rate with 2% inflation had a real risk-free rate less than the nominal rate.

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    5 Percent. 1 Percent. 3 Percent. 2 Percent. 7 Percent

    Uploaded by

    AliceJohn
    36 views1 page
    To induce lending with expected 2% inflation, the nominal interest rate must be 3%. An individual earned a 4% nominal return last year, prices increased 3%, with 28% federal and 6% state/local taxes, the real after-tax return was 0.72%. Municipal bonds pay interest exempt from federal taxes. An investor earning a 5% nominal risk-free rate with 2% inflation had a real risk-free rate less than the nominal rate.

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    chap_2_quiz.docx

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    To induce lending with expected 2% inflation, the nominal interest rate must be 3%. An individual earned a 4% nominal return last year, prices increased 3%, with 28% federal and 6% state/local taxes, the real after-tax return was 0.72%. Municipal bonds pay interest exempt from federal taxes. An investor earning a 5% nominal risk-free rate with 2% inflation had a real risk-free rate less than the nominal rate.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    36 views1 page

    5 Percent. 1 Percent. 3 Percent. 2 Percent. 7 Percent

    Uploaded by

    AliceJohn
    To induce lending with expected 2% inflation, the nominal interest rate must be 3%. An individual earned a 4% nominal return last year, prices increased 3%, with 28% federal and 6% state/local taxes, the real after-tax return was 0.72%. Municipal bonds pay interest exempt from federal taxes. An investor earning a 5% nominal risk-free rate with 2% inflation had a real risk-free rate less than the nominal rate.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 1

    An investor requires a 3 percent increase in purchasing power in order to induce her to lend.

    She
    expects inflation to be 2 percent next year. The nominal rate she must charge is about 
    - 5 percent.
    1 percent.
    3 percent.
    2 percent.
    7 percent.

    If you earn 0.5 percent a month in your bank account, this would be the same as earning a 6 percent
    annual interest rate with annual compounding. 
    True
    - False

    An individual actually earned a 4 percent nominal return last year. Prices went up by 3 percent over
    the year. Given that the investment income was subject to a federal tax rate of 28 percent and a
    state and local tax rate of 6 percent, what was the investor's actual real after-tax rate of return? 
    = -0.36 percent
    2.64 percent
    1.45 percent
    0.72 percent
    0.66 percent

    {0.04 * [1 - (0.28 + 0.06)]}-0.03

    Which of the following bond types pays interest that is exempt from federal taxation?
    - Municipal bonds
    Corporate bonds
    Treasury bonds
    Convertible bonds
    Municipal bonds and Treasury bonds

    An investor earned a 5 percent nominal risk-free rate over the year. However, over the year, prices
    increased by 2 percent. The investor's real risk-free rate was less than his nominal rate of return. 
    - True
    False

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