Loretta buys a one-year debt security on December 31, 2013, for $10,000, which will pay her a nominal interest rate of 5% percent. From December 31, 2013, to December 31, 2014, the inflation rate is 2 percent. Loretta has a tax rate of 40 percent.
a.How much nominal interest (in dollars) does Loretta earn during the year? Show your calculations. b.How much (in dollars) does Loretta pay in taxes on her interest income? Show your calculations. c.How much (in dollars) is Loretta's after-tax nominal income? Show your calculations. d.How much principal (in dollars) does Loretta lose because of inflation? Show your calculations. e.How much real interest income (in dollars) does Loretta earn? Show your calculations. f.How much (in dollars) is Loretta's after-tax real interest income? Show your calculations. g.What percent of Loretta's nominal interest income goes to: (1) her, in the form of after tax real interest income; (2) the government, in the form of taxes; and (3) inflation, in the form of lost principal value? Show your calculations.
What will be an ideal response?
a.Interest= principal × interest rate = $10,000 × 0.05 = $500 b.Taxes= interest × tax rate = $500 × 0.40 = $200 c.After-tax nominal income= interest ? taxes = $500 ? $200 = $300 d.Loss of principal to inflation= principal × inflation rate = $10,000 × 0.02 = $200 e.Real interest income= nominal interest ? loss of principal to inflation = $500 ? $200 = $300 f.After-tax real income= real interest income ? taxes = $300 ? $200 = $100 or After-tax real income= after-tax nominal income ? loss of principal to inflation = $300 ? $200 = $100 g.Of the $500 in nominal interest income, (1) Loretta gets $100/$500 = 20 percent; (2) the government gets taxes of $200/$500 = 40 percent; and (3) inflation gets $200/$500 = 40 percent.
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A) Time-series analysis B) Statistical demand analysis C) Econometric analysis D) Cost effectiveness analysis E) Exponential smoothing
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Use this information for questions that refer to the Wire Products Inc. (WPI) case.Rob Rose sat back to review the portfolio of products his company, Wire Products Inc. (WPI), has in its product line. The company specializes in making various products for consumer and industrial uses from hard laminated wire that is coated with special paints.1) WPI's Wire Closet products have been on the market for 10 years. Consumers install the wire shelves and closet rods themselves. The market leader, Closetmaid, has been selling similar products for more than 20 years, but so far the sales volume and profits for the market have continued to grow. Recently, several new competitors have come into the market.2) Three months ago, WPI entered the lawn and garden market with folding fences made with
laminated wire and branded as Wire Fold-Fence. Previously, WPI had never made fences or been a player in the lawn and garden market-although other companies have been making products in this market for years. However, Rob Rose has discovered that recent sales of wire garden fencing have leveled off and profits are declining overall. Still, WPI thinks it has some cost advantages and can grow its own sales and profits in this market.3) WPI has just developed Oil Wire, a new concept for the environmental cleanup market. Oil Wire is coated with a special material that cleans up oil spills. There has never been a product like this and WPI wants to quickly get the word out about its benefits. The product is now being rolled out in selective markets.4) Another business product is Wire Locker, used for secure storage by gymnasiums or companies. This style of locker has now gone out of fashion, and most customers are finding better materials to use for lockers. Aggressive selling has helped Wire Locker's sales stay flat, but the total market for wire-style lockers is only half what it was 10 years ago.5) WPI's Wire Window product is used as a security product to protect glass windows. It sells to homeowners and retailers looking for additional safety. WPI's sales of this product have dropped in recent years because competitors have introduced maintenance-free products. However, the overall market for this type of product continues to show good growth.6) WPI is running concept tests of a new wire car-top carrier called Wire Car Top. There are other car-top carrier products on the market, but WPI plans to include options in its carrier that will make it easier to load bikes, skis, and suitcases. Wire Car Top is also very easy to put on and take off of the car because of its light weight and ease-of-use features. The concept tests are helping WPI analysts develop rough estimates of costs, sales, and profits.7) Another new-product idea, tentatively called Wire Tent, is being considered. It would use laminated wires to create a portable tent frame. This product is currently being evaluated to determine its fit with the company's objectives and external market trends.Rob is thinking about the product life cycle, where each product fits, and what he should be doing as part of his marketing plan for each of these products. Is it a good idea for a company like WPI to have several product managers? A. Yes, because the company has several different product categories. B. No, because the company has several different product categories. C. No, because the company would need someone to give direction to the advertising manager. D. Yes, because the company would want to eliminate the job of advertising manager.
Refer to Instruction 8.1. Choosing strategy #3 will:
A) guarantee the lowest average annual rate over the next three years. B) eliminate credit risk but retain repricing risk. C) maintain the possibility of lower interest costs, but maximizes the combined credit and repricing risks. D) preclude the possibility of sharing in lower interest rates over the three-year period.