In which of the following cases is the after-tax real interest rate highest?
A)inflation is 6%,the pre-tax real interest rate is 3%,and the tax rate is 20%.
B)inflation is 6%,the pre-tax real interest rate is 3%,and the tax rate is 25%.
C)inflation is 4%,the pre-tax real interest rate is 2%,and the tax rate is 20%.
D)inflation is 4%,the pre-tax real interest rate is 2%,and the tax rate is 25%.

Question

Quizplus · Accepted Answer

The after-tax real interest rate is highest when the pre-tax real interest rate is highest and the tax rate is lowest. In this case, the pre-tax real interest rate is 3% and the tax rate is 20%, which gives an after-tax real interest rate of 2.4%.

In Which of the Following Cases Is the After-Tax Real