You put money in an account and earn a real interest rate of 4 percent.Inflation is 2 percent,and your marginal tax rate is 20 percent.What is your after-tax real rate of interest?

Question

Quizplus · Accepted Answer

The after-tax real rate of interest can be calculated as follows:
Real Interest Rate - (Real Interest Rate x Marginal Tax Rate)
= 4% - (4% x 20%)
= 4% - 0.8%
= 3.2%
Adjusted for inflation, the after-tax real rate of interest would be:
3.2% - 2% = 1.2%
Therefore, the correct answer is B, which is 2.8% (3.2% - 2%).

You Put Money in an Account and Earn a Real