Given a nominal interest rate of 10 percent, when would you earn the highest after-tax real interest rate?
A) Inflation is 1 percent, and the tax rate is 50 percent.
B) Inflation is 3 percent, and the tax rate is 40 percent.
C) Inflation is 4 percent, and the tax rate is 30 percent
D) Inflation is 5 percent, and the tax rate is 20 percent.

Question

Quizplus · Accepted Answer

A nominal interest rate of 10 percent with an inflation rate of 1 percent means a real interest rate of 9 percent. With a tax rate of 50 percent, the after-tax real interest rate would be 4.5 percent, which is higher than the after-tax real interest rates in the other options.

Given a Nominal Interest Rate of 10 Percent, When Would