If the Annual Rate Is 2% and Inflation Is 3

question 34

Multiple Choice

If the annual rate is 2% and inflation is 3%, then the approximate real rate of return is:

• A)5.00%
• B)3.00%
• C)1.00%
• D)- 1.0%
• E)0%

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Definitions:

Earnings and Profits

A tax term referring to the net income of a company with adjustments for certain tax-related items; crucial for determining how distributions to shareholders are taxed.

FMV

Fair Market Value; the estimated price at which an asset would trade in a competitive auction setting.

Nontaxable Return

A financial return or distribution that is exempt from taxes, such as certain gifts or inheritances.

Fiscal Year-End

The end of a 12-month period used for accounting purposes and preparing financial statements, not necessarily aligning with the calendar year.