Question

Which of the following is a depository-type of financial institution: a. mutual fund b. insurance company d. investment firm savings institution What is the effective yield the investor would expect if the tax rate of the investor is 30% & the nominal yield offered on a taxable investment is 16%? 4Government securities are considered default free (risk free) because (one best answer): a. the government never lies D the government has never defaulted; č. the government can always raise taxes or print the money d. there is no fault found in the products produced in America. 5. Fhe store of value purpose for money: b. is harmed by inflation a. is aided by inflation c. is not considered a serious issue d. implies automatic growth. 6 Given a 40% tax bracket and 7% offered ona municipal issue, the effective rate is: 31. 21. #7 Given a 40% federal tax bracket and 8% offered on a treasury issue, the nominal rate on a corporate issue to equal the treasury rate is: 8. Historically, as opposed to currently, the largest source of funds for banks was iecking acounts savings deposits traai enostp tis 6 transaction deposits; savings deposits a. checking accounts; savings deposits ounts d. checking deposits; time deposits.

Answer 1

(2) A depository-type of a financial institution is one which accepts deposits of money in return for a promised yield to the depositors. In this context, such an institution is the savings institution. Hence, the correct option is (c)

(3) Nominal (before-tax) Yield = 16 % and Tax Rate = 30 %

Effective Yield = Nominal Yield x (1-Tax Rate) = 16 x (1-0.3) = 11.2 %

(4) Government securities are considered default free because they are backed by the government's taxing powers as well as its authority to print money. Hence, the correct option is (c).

(5) Inflation denotes the purchasing power of a given amount of money. Therefore, money's ability to purchase goods/services is negatively impacted by inflation (rising inflation), thereby implying that store of value feature goes down as time passes. Hence, the correct option is (b).

NOTE: Please raise separate queries for solutions to the remaining unrelated questions.