Principles of Investment Answers

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What occurs over time as a result of inflation? Check all that apply.Interest becomes worth less money.The dollar’s value becomes unstable.Interest rates decrease.Interest rates fluctuate in value.The dollar’s future value changes.

A
Interest becomes worth less money.
B
The dollar’s value becomes unstable.
C
Interest rates decrease.
D
Interest rates fluctuate in value.
E
The dollar’s future value changes.
2
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If the nominal interest rate is 4.00% and the rate of inflation is 2.25%, what is the real interest rate?

A
1.75%
B
4.50%
C
6.25%
D
9.00%
3

If an investor has a $5,000 pretax return, the state tax rate is 4.5%, and the federal tax rate is 22.0%, what is the real investment value?

A
$1,325
B
$3,675
C
$3,900
D
$4,775
4

Interest rates generally reflect

A
the potential effects of inflation.
B
the level of risk in an investment.
C
the real value of the investment.
D
the amount of money invested.

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