With a nominal interest rate of 4%,an expected inflation rate of 1%,and interest income taxed at a rate of 25%,what is the expected real after-tax interest rate?
A)3%
B)2%
C)1%
D)0%

Question

Quizplus · Accepted Answer

The expected real after-tax interest rate can be calculated as follows:
Real Interest Rate = Nominal Interest Rate - Inflation Rate
= 4% - 1%
= 3%
After-tax Real Interest Rate = Real Interest Rate * (1 - Tax Rate)
= 3% * (1 - 0.25)
= 2%
Therefore, the expected real after-tax interest rate is 2%. Option B is the correct answer.

With a Nominal Interest Rate of 4%,an Expected Inflation Rate