The Country of Lessidinia Has a Tax System Identical to That

question 30

Multiple Choice

The country of Lessidinia has a tax system identical to that of the United States.Suppose someone in Lessidinia bought a parcel of land for 20,000 foci (the local currency) in 1960 when the price index equaled 100.In 2002,the person sold the land for 100,000 foci,and the price index equaled 600.The tax rate on nominal gains was 20 percent.Compute the taxes on the nominal gain and the change in the real value of the land in terms of 2002 prices to find the after-tax real rate of capital gain.

• A)-60 percent
• B)-30 percent
• C)30 percent
• D)60 percent

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Definitions:

Compounded Monthly

Interest on an investment or loan calculated and added to the balance monthly, leading to interest on interest.

Amortized

Describes a loan or mortgage with scheduled periodic payments that cover both interest and principle over a certain time period.

Quarterly Withdrawals

Withdrawals made from an account or investment every three months.

Investment Earning

The profit generated from investing capital in financial assets, such as stocks, bonds, or real estate.