a) Suppose that you purchased 10 shares of ABC stock for $100 per share; one year...

 

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a) Suppose that you purchased 10 shares of ABC stock for $100 per share; one year later you sold the 10 shares for $120 a share. Over the year, the CPI increased from 140.0 to 147.0. The tax rate on nominal capital gains is 50 percent. What was your before-tax nominal return rate on the stock trading? What was the tax on your nominal capital gain? What was your after-tax real return rate on the stock trading? Have you experienced a loss in the stock trading? Explain. (10 marks) b) Alternatively, you could put your $1,000 in to an account and earn an 8 percent nominal interest rate. Suppose that the inflation rate stays the same as above, and your tax rate on interest income is 20 percent. What was the tax on your interest income? What was your after-tax nominal rate of interest? What was your after-tax real rate of interest? (7 marks) c) In the period concerned above, suppose the real GDP grew by 8%, what is the growth rate of the money supply? Show calculations. (You may assume the CPI accurately reflects the overall price level.) (8 marks) a) Suppose that you purchased 10 shares of ABC stock for $100 per share; one year later you sold the 10 shares for $120 a share. Over the year, the CPI increased from 140.0 to 147.0. The tax rate on nominal capital gains is 50 percent. What was your before-tax nominal return rate on the stock trading? What was the tax on your nominal capital gain? What was your after-tax real return rate on the stock trading? Have you experienced a loss in the stock trading? Explain. (10 marks) b) Alternatively, you could put your $1,000 in to an account and earn an 8 percent nominal interest rate. Suppose that the inflation rate stays the same as above, and your tax rate on interest income is 20 percent. What was the tax on your interest income? What was your after-tax nominal rate of interest? What was your after-tax real rate of interest? (7 marks) c) In the period concerned above, suppose the real GDP grew by 8%, what is the growth rate of the money supply? Show calculations. (You may assume the CPI accurately reflects the overall price level.) (8 marks)

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a The beforetax nominal return rate is 20 and the tax on the nominal capital gain is 100 The afterta... View the full answer