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fin 416 ch 5 notes - If r=10 i=5 and e=50 Real return 10-5...

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Governments can tax and borrow money, tax revenue ssi, medicare Demand for funds from gov and private sector, supply of funds from households Real and nominal interest rates Nominal-deposit and interest from the bank Real- in terms of purchasing power Inflation-general increase in prices Taxes reduce the real return of investors
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Unformatted text preview: If r=10%, i=5% and e=50% Real return 10-5% R= 10%*.5-5%=0% We pay taxes on nominal return E=tax bracket Zero Coupon Bond, Par = $100, T=maturity, P=price, r f (T)=total risk free return • EAR definition: percentage increase in funds invested over a 1-year horizon • APR: annualizing using simple interest...
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