iven a nominal interest rate of 8 percent, in which of the following cases would
ID: 1115098 • Letter: I
Question
iven a nominal interest rate of 8 percent, in which of the following cases would you carn the highest after-tax real interest rate? a. Inflation rate is 5 percent; the tax rate is 20 percent. b. Inflation rate is 4 percent, the tax rate is 30 percent. c. Inflation rate is 3 percent; the tax rate is 40 percent. d. After-tax real interest rate is the same for all of the above 14. Etisalat wants to finance the purchase of new equipment for its cell phone services. The firm has limited internal funds, so Etisalat likely will a. Demand funds from the financial system by buying bonds b. Supply funds to the financial system by selling bonds c. Supply funds to the financial system by buying bonds. d. Demand funds from the financial system by selling bondsExplanation / Answer
13. Given a nominal interest rate of 8%, in which of the following cases would you earn the highest after-tax real interest rate??
d. After -tax real interest rate is the same for all the above
Explanation.....Here, the nominal rate of interest is common at 8% and in all the three cases if the inflaion is high then the tax rate is less and if the inflation is less then the tax rate is high, so it will not affect the after tax real interest rate much.
14.Etisalat wants to finance the purchase of new equipment for its cell phone services. The firm has limiteed internal funds, so Etisalat likely will:
d. Demand funds from the financial system by selling bonds
Explanation.....As it is said that the firm has limited funds so it cannot buy any bond because of shortage of funds, thus it has to sell the exiting bonds in order to buy the equipment and demand some funds against it.
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