If the nominal return is constant, the after-tax real rate of return
A) declines as the inflation rate increases.
B) increases as the inflation rate increases.
C) declines as the inflation rate declines.
D) increases as the inflation rate decreases.
E) declines as the inflation rate increases and increases as the inflation rate decreases.

Question

Quizplus · Accepted Answer

The after-tax real rate of return adjusts the nominal return for both taxes and inflation. As inflation increases, the real value of the return decreases, leading to a lower after-tax real rate of return. Conversely, as inflation decreases, the real value of the return increases, leading to a higher after-tax real rate of return. This is because the nominal return is constant, and the effect of inflation directly impacts the real purchasing power of the returns.

If the Nominal Return Is Constant, the After-Tax Real Rate