A person received 4% nominal interest. The inflation rate was -2% and the tax rate was 25%. This person received an after-tax real interest rate of 5%.

Question

Quizplus · Accepted Answer

The after-tax real interest rate is calculated as (1 + nominal interest rate) / (1 + inflation rate) * (1 - tax rate) - 1. In this case, the after-tax real interest rate is (1 + 0.04) / (1 - 0.02) * (1 - 0.25) - 1 = 0.05, which is equal to 5%.

A Person Received 4% Nominal Interest