Given a Nominal Interest Rate of 6 Percent,in Which Case

question 31

Multiple Choice

Given a nominal interest rate of 6 percent,in which case would you earn the lowest after-tax real rate of interest?

• A)Inflation is 4 percent; the tax rate is 25 percent.
• B)Inflation is 3 percent; the tax rate is 20 percent.
• C)Inflation is 2 percent; the tax rate is 15 percent.
• D)The after-tax real interest rate is the same for all of the above.

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Definitions:

Total Debt Ratio

A financial ratio that measures the extent of a company’s leverage, calculated by dividing its total liabilities by its total assets.

Profit Margin

A financial metric indicating the percentage of revenue that exceeds the costs of goods sold, representing the profitability.

Current Ratio

This ratio assesses whether a company can cover debts due in less than a year, indicating its short-term financial health.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within one year or within the firm's operating cycle if longer.