Given a nominal interest rate of 8 percent,in which of the following cases would you earn the highest after-tax real interest rate?
A)Inflation is 5 percent;the tax rate is 40 percent.
B)Inflation is 4 percent;the tax rate is 30 percent.
C)Inflation is 3 percent;the tax rate is 45 percent.
D)Inflation is 2 percent;the tax rate is 50 percent.

Question

Quizplus · Accepted Answer

To calculate the after-tax real interest rate, we need to subtract the inflation rate and the tax rate from the nominal interest rate. Therefore, for Option A, the after-tax real interest rate would be 8% - 5% - 40% = 3% * (1-0.4) = 1.8%. Similarly, for Option B, the after-tax real interest rate would be 8% - 4% - 30% = 4% * (1-0.3) = 2.8%. For Option C, the after-tax real interest rate would be 8% - 3% - 45% = 2% * (1-0.45) = 1.1%. And for Option D, the after-tax real interest rate would be 8% - 2% - 50% = 2% * (1-0.5) = 1%. Therefore, Option D would provide the highest after-tax real interest rate.

Given a Nominal Interest Rate of 8 Percent,in Which of the Following