ch5(6e) sample - ch5(6e sample 1 Suppose the marginal tax...

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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 after-tax 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 before-tax 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 after-tax real rate of return? 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 before-tax nominal rate of return have to increase in order to preserve the same after-tax real return that existed when inflation was 0.05?

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4. XYZ stock price and dividend history are as follows: Year Beginning-of-Year Price Dividend Paid at Year-End 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?
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