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PLEASE EXPLAIN DETAILSLet's assume that the real rate of return is a constant 2 0 % . If inflation is 5 0 % , then

PLEASEEXPLAIN DETAILSLet's assume that the real rate of return is a constant 20%. If
inflation is 50%, then the nominal rate of return is 80%(because
(1+0.50)*(1+0.20)=1.80). Therefore, you get $180 over a one year
period for a $100 investment. Assuming income taxes to the tune of
40%, compute the real value of your investment (after taxes on
nominal income have been paid) at the end of the year. Now contrast
the same scenario but without any inflation, what would the value
of your investment be at the end of the year. What lesson can we
learn comparing these two scenarios? [15 marks]

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