Given a Nominal Interest Rate of 6 Percent,in Which of the Following

question 8

Multiple Choice

Given a nominal interest rate of 6 percent,in which of the following cases would you earn the highest after-tax real rate of interest?

• A)Inflation is 2.5 percent;the tax rate is 25 percent.
• B)Inflation is 3 percent;the tax rate is 20 percent.
• C)Inflation is 2 percent;the tax rate is 30 percent.
• D)The after-tax real interest rate is the same for all of the above.

---

Definitions:

Subprime Mortgage Market

A segment of the mortgage market that caters to individuals with poor credit histories who are considered higher risk borrowers.

Low-income Individuals

persons or groups with earnings significantly below the median level of income for their society or geographic area.

Interest Rate Ceilings

A regulatory measure that sets the maximum interest rate that can be charged on loans and other financial products.

Deregulation

The process of reducing or eliminating government controls and restrictions in an industry to enhance efficiency and competition.