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.Which of the following statements regarding these investment options is true?
A)Investment option 1 has the highest nominal rate of return.
B)The expected percent rate of interest during the time of maturity of investment option 3 is 1.48%.
C)Investment option 3 has the highest expected inflation rate and the lowest real rate of return.
D)Adjusted for inflation,investment option 1 is the best choice for Hugh.

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.Which of the following statements regarding these investment options is true?
A)Investment option 1 has the highest nominal rate of return. 
B)The expected percent rate of interest during the time of maturity of investment option 3 is 1.48%. 
C)Investment option 3 has the highest expected inflation rate and the lowest real rate of return. 
D)Adjusted for inflation,investment option 1 is the best choice for Hugh.

Quizplus · Accepted Answer

Investment option 1 has the highest nominal rate of return but also has the highest expected inflation rate, resulting in a lower real rate of return. Investment option 3 has the lowest nominal rate of return but also has the lowest expected inflation rate, resulting in a higher real rate of return. Adjusted for inflation, investment option 1 is not the best choice for Hugh. Therefore, the best choice for Hugh would be investment option 3.