Mr X Invests $1,000 at a 10 Percent Nominal Rate

question 62

Multiple Choice

Mr. X invests $1,000 at a 10 percent nominal rate for one year. If the inflation rate is 4 percent, what is the real value of the investment at the end of one year?

• A)$1,100
• B)$1,000
• C)$1,058
• D)$1,040

---

Definitions:

Underlying Asset

The financial asset that determines the value of a derivative instrument or structured product.

Treasury Bills

Short-term debt securities issued by the government with a maturity of less than one year, used to finance government spending.

Put Option

A financial contract giving the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a predetermined price within a specific time frame.

Market Value

The present cost at which a product or service is available for purchase or sale in the market.