A year ago you invested $10,000 at a nominal interest rate of 6%. Your marginal tax rate is 32%. You expected an inflation rate of 2% and a real rate of 4%. Determine the after tax real rate of interest of differentrealized inflation rates in the gray highlighted area.

Inflation rate I - After tax realizied rate

0 0.0272

0.02 0.0208

0.04 0.0144

0.06 0.0080

0.08 0.0016

0.1 -0.0048

0.085 0.0000

"At what inflation rate does your realized rate of return become negative?

Please use the excel round function to round your answers to 4 digits [Hint: x.xxxx]"

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You are provided with Zero coupon bond information: (i) Maturity-T; (ii) current price. Please fill in the holding period return, r(T),for all given maturities in the gray highlighted area

Bond Information

Price Maturity r(T)

99.51 0.25 24.8765

98.87 0.5 24.7174

97.32 1 24.3309

93.89 2 23.4736

90.19 3 22.5486

83.19 5 20.7969

66.91 10 16.7276

17 What is the 5-years holding period return, rounded to 4 digits ?

18 The premium of the long term rate over the 3-months rate

A is increasing over time

B is positive

C is negative

D positive but decreases over time

19 Assume that the real rate of interest is 1.75% for all maturities. This means

A Expected inflation is higher the longer the investment horizon

B Interest risk uncertainty increases with time

C A and B

D Either A or B

Answer rating: 100% (QA)

To determine the aftertax real rate of interest we need to consider the effects of both taxes and in... View the full answer