You put money into an account and earn a real interest rate of 4 percent. Inflation is 2 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest?
A)1.5 percent
B)2.5 percent
C)5.0 percent
D)4.5 percent

Question

Quizplus · Accepted Answer

The nominal interest rate is the real interest rate plus inflation, which is 4% + 2% = 6%. The after-tax nominal interest rate is 6% * (1 - 0.25) = 4.5%. The after-tax real interest rate is 4.5% - 2% = 2.5%.

You Put Money into an Account and Earn a Real