Suppose the One-Year T-Bill Rate Was 5% on 1/1/2007,4% on 1/1/2008,and

question 31

Essay

Suppose the one-year T-bill rate was 5% on 1/1/2007,4% on 1/1/2008,and 6% on 1/1/2009.The GDP deflator (2004 = 100)was 110 on 1/1/2007,112 on 1/1/2008,114 on 1/1/2009,and 120 on 1/1/2010.The tax rate on interest income is 30%.
(a)Calculate the after-tax nominal rate of return for 2007,2008,and 2009.
(b)If you began with $1000 on 1/1/2007 and invested in T-bills each year (paying taxes at the end of each year),how much would you have in nominal terms on 1/1/2010? How much would you have in real terms (2004 dollars)?
(c)How much was your nominal after-tax interest earned in part (b)over the three years? How much did you earn in real (2004)after-tax dollars?

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Definitions:

Mirror Neurons

Neurons that fire both when an individual acts and when the individual observes the same action performed by another, contributing to empathy and understanding.

Neurotransmitter

Chemical messengers used by the nervous system to transmit messages between neurons or from neurons to muscles.

Hormones

Chemical messengers produced by the endocrine glands that are released into the blood to affect target organs.

Emotional Outbursts

Sudden, extreme expressions of strong emotion that are often disproportionate to the situation at hand, sometimes resulting from stress, frustration, or other intense feelings.