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:

Open Market

An economic environment that allows for the free exchange of goods and services between willing parties without undue restrictions.

Debt Ratio

A financial ratio that measures the extent of a company's leverage, calculated as the company's total liabilities divided by its total assets.

Real Estate Investment Trusts

Companies that own, operate, or finance income-generating real estate, offering investors a way to invest in real estate through the purchase of publicly traded shares.

Portfolio Turnover

This term refers to the frequency at which assets within a portfolio are bought and sold by the manager, indicating trading activity level and potential costs.