Preetham Is Considering an Investment That Has a Stated Nominal

question 23

Multiple Choice

Preetham is considering an investment that has a stated nominal return of 12%. There is a 1% probability of default, however, in which case Preetham would lose all his investment. The
Inflation rate is expected to be 4%, and Preetham's marginal tax rate is 25%. What is his real,
After-tax, post-default expected rate of return?

• A)4.71%
• B)2.62%
• C)8.16%
• D)4.00%

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