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ch5(6e) sample
1. Suppose the marginal tax rate is 33%. A certain investment yields 0.2296 before taxes when expected and
actual inflation = 0.05. What is the aftertax real rate?
A. 0.0938
B. 0.1038
C. 0.1138
D. 0.1238
2. Suppose the marginal tax rate is 33%. A certain investment yields 0.2296 before taxes when expected and
actual inflation = 0.05. Now suppose that actual and expected inflation increases to 0.10. If investors
(irrationally) increase their required beforetax nominal return point for point with increases in expected
inflation (i.e., using the approximation for of the Fisher equation R = r+i), what will be their aftertax real rate
of return?
A. 0.0573
B. 0.0673
C. 0.0773
D. 0.0873
3. Suppose the marginal tax rate is 33%. A certain investment yields 0.2296 before taxes when expected and
actual inflation = 0.05. Now suppose that actual and expected inflation increases to 0.10. How much would the
beforetax nominal rate of return have to increase in order to preserve the same aftertax real return that existed
when inflation was 0.05?
A. 0.0645
B. 0.0745
C. 0.0845
D. 0.0945
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View Full Document4. XYZ stock price and dividend history are as follows:
Year
BeginningofYear Price
Dividend Paid at YearEnd
2002
$100
$4
2003
$110
$4
2004
$90
$4
2005
$95
$4
An investor buys three shares of XYZ at the beginning of 2002, buys another two shares at the beginning of 2003, sells one share at the beginning of
2004, and sells all four remaining shares at the beginning of 2005.
What is the arithmetic average rate of return for the investor?
A. 3.15%
B. 3.25%
C. 3.35%
D. 3.45%
5. XYZ stock price and dividend history are as follows:
Year
BeginningofYear Price
Dividend Paid at YearEnd
2002
$100
$4
2003
$110
$4
2004
$90
$4
2005
$95
$4
An investor buys three shares of XYZ at the beginning of 2002, buys another two shares at the beginning of 2003, sells one share at the beginning of
2004, and sells all four remaining shares at the beginning of 2005.
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 Spring '09
 Dr.Dale
 Business, Taxes, Inflation, Marginal Tax Rate

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