If You Require a Real Growth in the Purchasing Power

question 70

Multiple Choice

If you require a real growth in the purchasing power of your investment of 8%,and you expect the rate of inflation over the next year to be 3%,what is the lowest nominal return that you would be satisfied with?

• A) 3.00%
• B) 8.00%
• C) 11.00%
• D) 11.24%

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Definitions:

Yield-to-Maturity

The total return expected on a bond if held until its maturity date, accounting for its current market price, face value, interest rate, and time to maturity.

Marginal Tax Rate

A rephrasing: The portion of tax applied to your income for each additional dollar you earn.

Required Rate of Return

The minimum annual percentage return an investor expects to earn from an investment, considering its risk level.

Preferred Shares

A type of stock that provides holders with a fixed dividend, which must be paid before dividends are paid to ordinary shareholders.