Suppose One Year Ago the Price Index Was 120 and Mark

question 300

Multiple Choice

Suppose one year ago the price index was 120 and Mark purchased $20,000 worth of bonds.One year later the price index is 126.Mark redeems his bonds for $22,250 and is in a 40 percent tax bracket.What is Mark's real after-tax rate of interest to the nearest tenth of a percent?

• A) 4.3 percent
• B) 3.1 percent
• C) 1.8 percent
• D) 1.2 percent

---

Definitions:

Commitment Fee

A fee charged by a lender to a borrower for an agreed loan that has not yet been utilized, ensuring the availability of the loan for a specified period.

Revolving Credit Agreement

A credit facility extended by a lender to a borrower that allows the borrower to draw down or withdraw, repay, and redraw loans advanced to it up to a certain agreed amount.

Speculative Demand

Demand for a good or service based not on its inherent value or utility, but on expectations of future price changes or market conditions.

Abrupt Drop

A sudden and steep decline in the value or level of something, such as the stock market or an individual stock.