Given a nominal interest rate of 10 percent, in which of the following cases would you earn the highest after-tax real interest rate?
A)Inflation is 6 percent, and the tax rate is 20 percent.
B)Inflation is 5 percent, and the tax rate is 30 percent.
C)Inflation is 4 percent, and the tax rate is 40 percent.
D)Inflation is 2 percent, and the tax rate is 50 percent.

Question

Quizplus · Accepted Answer

To calculate the after-tax real interest rate, we need to deduct taxes and inflation from the nominal interest rate. So, in this case, after deducting 2% inflation and 50% taxes from the nominal interest rate of 10%, we get an after-tax real interest rate of 3% (10% - 2% - (50% of 10%) = 3%). This is the highest after-tax real interest rate among all the given options.

Given a Nominal Interest Rate of 10 Percent, in Which