You put money in an account that earns 6 percent.The inflation rate is 4 percent,and your marginal tax rate is 10 percent.Which of the following is your after-tax real rate of interest?

Question

Quizplus · Accepted Answer

After-tax real rate of interest can be calculated as
(1 - marginal tax rate) * (1 + interest rate) / (1 + inflation rate) - 1
Plugging in the given values, we get:
(1 - 0.10) * (1 + 0.06) / (1 + 0.04) - 1 = 0.014 or 1.4 percent
Therefore, the after-tax real rate of interest is 1.4 percent.

You Put Money in an Account That Earns 6 Percent