What Nominal Annual Return Is Required on an Investment for an Investor

question 58

Multiple Choice

What nominal annual return is required on an investment for an investor to experience a 12% gain in purchasing power? Assume inflation is 4%.

• A) 7.69%
• B) 9.29%
• C) 12.00%
• D) 16.48%

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Definitions:

Non-Controlling Interest

A stake in a company that is less than 50%, meaning the investor does not have a majority control.

Preference Shares

Shares which have rights to dividends that are paid out before dividends to common shareholders and may have priority over common shares in the event of liquidation.

Goodwill

Represents the excess amount paid over the fair market value of the net assets during an acquisition, attributed to factors like brand reputation, customer relations, and intellectual property.

Acquisition Differential

The difference between the cost of acquiring a company and the fair value of its identifiable net assets at the time of acquisition, essentially another term for goodwill.