You put money into an account and earn an after-tax real interest rate of 2.5 percent.If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent,then what is the tax rate?
A)28.00 percent
B)36.25 percent
C)43.75 percent
D)67.50 percent

Question

Quizplus · Accepted Answer

The after-tax real interest rate is calculated as the nominal interest rate minus the inflation rate, adjusted for taxes. The formula is: After-tax real rate = (1 - tax rate) * (nominal rate - inflation rate). Plugging in the values: 2.5% = (1 - tax rate) * (8% - 2%). Solving for the tax rate gives 43.75%.

You Put Money into an Account and Earn an After-Tax