Suppose the nominal interest rate is 10 percent, the tax rate on interest income is 28 percent, and the inflation rate is 6 percent. Then the after-tax real interest rate is -3.2 percent.

Question

Quizplus · Accepted Answer

The after-tax nominal interest rate is calculated as the nominal interest rate minus the tax on the interest. So, it's 10% - (10% * 28%) = 7.2%. The real interest rate is then calculated by adjusting this after-tax nominal rate for inflation: 7.2% - 6% = 1.2%.

Suppose the Nominal Interest Rate Is 10 Percent, the Tax