If a Bond Offers an Investor 11 Percent in Nominal

question 14

Multiple Choice

If a bond offers an investor 11 percent in nominal return during a year in which the rate of inflation was 4 percent, then the investor's real return was:

• A)6.73 percent
• B)7.00 percent
• C)8.75 percent
• D)10.56 percent 1 + real return = 1.11/1.04

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Definitions:

Handscroll

A long narrow piece of paper or silk, used in East Asian art for painting and calligraphy, viewed by unrolling horizontally.

Negative Income Tax

A system where individuals earning below a certain amount receive supplemental pay from the government instead of paying taxes.

Tax Liability

The total amount of taxes an individual or organization owes to the tax authorities.

Income Subsidy

Financial assistance programs provided by governments or institutions to individuals or groups to help supplement their income, typically aimed at the needy or to promote certain economic activities.