When Comparing Different Investment Opportunities (Each with the Same Risk)with

question 44

Multiple Choice

When comparing different investment opportunities (each with the same risk) with different interest rates reported in different ways you should

• A)convert each interest rate to an annual nominal rate.
• B)convert each interest rate to a monthly nominal rate.
• C)convert each interest rate to an effective annual rate.
• D)compare them by using the published annual rates.
• E)convert each interest rate to an APR.

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Definitions:

Proportional Tax

A proportional tax is a tax system where the tax rate remains constant regardless of the amount subject to taxation, meaning individuals pay the same percentage of their income regardless of income level.

Regressive Tax

A tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases, disproportionately affecting those with lower income.

Average Tax Rate

The ratio of total taxes paid to the total taxable income, reflecting the percentage of income that goes to taxes.

Tax-Free

Earnings or financial transactions that are exempt from taxation by the government.