You Purchase a One-Year Security with an Expected Real Pretax

question 21

Multiple Choice

You purchase a one-year security with an expected real pretax return of 5%. You forecast a 7% rate of inflation and are in the 28% tax bracket. Your after-tax nominal return would be

• A) 2.6%.
• B) 5.4%.
• C) 4.3%.
• D) 8.9%.

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Definitions:

Economic Theory

A framework or set of principles explaining how economies function and how economic agents interact.

Quota Rent

The extra profit that producers can make when supply is artificially restricted by an import quota.

Demand Price

The highest price that consumers are willing to pay for a good or service at a given quantity.

Supply Price

The lowest price at which a seller is willing to sell a good or service, influenced by costs of production and market demand.