If the real rate of return is 2% (before taxes), the rate of inflation is 5%, and your marginal tax rate is 25%, what is your after-tax nominal return on a risk-free investment? Round your
Answer to the nearest tenth of a percent.

Question

Quizplus · Accepted Answer

The nominal return before taxes is the real rate plus inflation: 2% + 5% = 7%. After taxes, the return is 7% * (1 - 0.25) = 5.25%, rounded to 5.3%.

If the Real Rate of Return Is 2% (Before Taxes)