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%.

---

Definitions:

Operating Profit

The earnings from the primary operations of a business, without taking into account the deductions for taxes and interest.

Annapolis Rotary Club

A service organization located in Annapolis that is part of the global Rotary Club network, focusing on community service and international projects.

Condiments

Substances such as salt, pepper, mustard, and mayonnaise that are added to food to enhance flavor.

Mark-up

Extra pricing over the cost of goods aiming to take care of overheads and profit.