Where Would You Prefer to Invest, and Why, If Nominal

question 92

Multiple Choice

Where would you prefer to invest, and why, if nominal rates are 10% in Canada and 25% in Holland, while the expected rates of inflation are 5% and 19% respectively? Assume investments of equal risk.

• A)Invest in Holland due to higher nominal rate.
• B)Invest in Canada; real return is 1.1% higher.
• C)Invest in Canada; real return is 0.1% higher.
• D)Invest in Holland; real return is 0.28% higher.

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Definitions:

Held-to-Maturity Debt Securities

Debt instruments that a company intends and is able to hold until they mature, recorded at amortized cost in the company's financial statements.

Trading Debt Securities

The buying and selling of debt investments like bonds, often for speculation or income generation.

Stock Investments

Financial assets representing shares of ownership in a company, acquired for income or capital appreciation.

Profit Margin

A financial metric used to evaluate a company's profitability by comparing net income to revenue, often expressed as a percentage.