Exhibit 19-2.Hugh Wallace has the following information regarding three investment options.Each investment option involves the same one-year period. Refer to Exhibit 19-2.What nominal rate of return will Hugh earn if he invested in option 1?
A)0.79 percent
B)3.22 percent
C)0.32 percent
D)6.67 percent

Question

Exhibit 19-2.Hugh Wallace has the following information regarding three investment options.Each investment option involves the same one-year period.  Refer to Exhibit 19-2.What nominal rate of return will Hugh earn if he invested in option 1?
A)0.79 percent 
B)3.22 percent 
C)0.32 percent 
D)6.67 percent

Quizplus · Accepted Answer

Option 1 has a real rate of return of 2.5% and an inflation rate of 1.5%, which gives a nominal rate of return of 4%. Option 2 has a nominal rate of return of 4.5% and an inflation rate of 3.5%, which gives a real rate of return of 1%. Option 3 has a nominal rate of return of 8% and an inflation rate of 5%, which gives a real rate of return of 3%. Therefore, option 1 has the highest nominal rate of return at 4%.