Given a nominal interest rate of 8 percent,in which case below would you earn the highest after-tax real interest rate?

Question

Quizplus · Accepted Answer

To calculate the after-tax real interest rate, we need to subtract the inflation rate and the taxes paid from the nominal interest rate. Thus, for option A, the after-tax real interest rate would be 8% - 5% - (20% of 8%) = 2.4%. For option B, the after-tax real interest rate would be 8% - 4% - (30% of 8%) = 1.6%. For option C, the after-tax real interest rate would be 8% - 3% - (40% of 8%) = 0.8%. Therefore, option C earns the highest after-tax real interest rate.

Given a Nominal Interest Rate of 8 Percent,in Which Case