You Are Considering an Investment That Has a Stated Nominal

question 56

Multiple Choice

You are considering an investment that has a stated nominal return of 28% with a 10% probability of default, in which case you would lose all your money. The inflation rate is
Expected to be 4% and your marginal tax rate is 30%. What is your real, after-tax, post-default
Expected rate of return?

• A)6.38%
• B)13.1%
• C)2.54%
• D)None of the above is correct.

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Definitions:

Rate Of Interest

The percentage of an amount of money which is charged for its use per period of time, often expressed annually.

Unit Banking States

States in the U.S. where banks are required to operate only a single banking office, limiting their physical presence and expansion.

Bank Charter

A legal document that authorizes the creation of a banking institution and outlines its operations.

M1

The most liquid components of the money supply, including cash, demand deposits, and other liquid deposits against which checks can be written.