Exhibit 19-2

question 85

Multiple Choice

Exhibit 19-2.Hugh Wallace has the following information regarding three investment options.Each investment option involves the same one-year period. Refer to Exhibit 19-2.Which of the following statements regarding these investment options is true?

• A)Investment option 1 has the highest nominal rate of return.
• B)The expected percent rate of interest during the time of maturity of investment option 3 is 1.48%.
• C)Investment option 3 has the highest expected inflation rate and the lowest real rate of return.
• D)Adjusted for inflation,investment option 1 is the best choice for Hugh.

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Definitions:

Budget Constraint

The restrictions on the sets of goods and services a consumer can purchase, determined by their income and the cost of these items.

Nachos

A Mexican dish consisting of heated tortilla chips covered with melted cheese and often also served with a variety of toppings.

Water

A transparent, tasteless, odorless, and nearly colorless chemical substance that is the main constituent of Earth's streams, lakes, and oceans, and the fluids of most living organisms.

Marginal Rate

The additional cost or benefit associated with a one-unit increase in activity, often used in the context of taxation or production.