Sam Deposits Money into an Account with a Nominal Interest

question 302

Multiple Choice

Sam deposits money into an account with a nominal interest rate of 4 percent. He expects inflation to be 1.5 percent. His tax rate is 20 percent. Sam's after-tax real rate of interest

• A)will be 2 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent.
• B)will be 2 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent.
• C)will be 1.7 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent.
• D)will be 1.7 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent.

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Definitions:

Win-lose

A competitive perspective where one party's gain is perceived to be at the expense of another's loss.

Third Party

An entity or individual that is not directly involved in a transaction or agreement but may be affected by it or have an interest in it.

Conflicts

Disagreements or disputes between individuals or groups, often arising from differing needs, values, or interests.

Moderate

Exhibiting average intensity or amount; neither extreme nor minimal.