Hugh Wallace Has the Following Information Regarding Three Investment Options

question 93

Multiple Choice

Hugh Wallace has the following information regarding three investment options. Each investment option involves the same one-year period. What real percent rate of return will Hugh earn if he invests in option 2?

• A) −2.5%
• B) 4.58%
• C) 0.96%
• D) −3.37%

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Definitions:

Rational Expectations

The hypothesis in economics that assumes individuals form forecasts of future events based on all available information in an unbiased and rational manner.

Potential Output

The highest level of output an economy can produce without leading to inflation, when operating at full employment.

Monetary Policy

Actions undertaken by a central bank to control the money supply and interest rates to achieve macroeconomic objectives like controlling inflation, consumption, growth, and liquidity.

Wage Increases

Adjustments to employee salaries that lead to a higher rate of pay, often in response to factors like inflation, performance, and market demands.