I. Joe is deciding whether or not to invest $10,000 in a business that has oe ca

Question

I. Joe is deciding whether or not to invest $10,000 in a business that has oe can lose against it. If Joe inves ts and the business loses the lawsuits, the most J A) $10,000 if Joe is a general partner. B) $10,000 if Joe is a sole proprietor. C) $10,000 if Joe is a limited partner D) S10,000 plus his share o f the lawsuits if Joe is a limited partner. The nominal interest rate is 9% and the expected inflation rate effect, the real rate of interest is is 2%. Based on the Fisher A) 7.02%. B) 6.86%. C) 6.10%. D) 7.90%. 30.

Explanation / Answer

1. C

(A limited partner will not be personally sued by the creditors)

2. B

(1+r = 1+i/ 1+inflation. Hence 1+r = 109/102 = 1.0686. r = 6.86%)

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