If the nominal interest rate is 10 percent, the inflation rate is 6 percent, and the tax rate on interest income is 25 percent, what is the after-tax real interest rate?
A) 4.0 percent
B) 6.0 percent
C) 3.0 percent
D) 1.5 percent
E) 3.5 percent

Question

Quizplus · Accepted Answer

The after-tax nominal interest rate is 10% * (1 - 0.25) = 7.5%. The after-tax real interest rate is 7.5% - 6% = 1.5%.

If the Nominal Interest Rate Is 10 Percent, the Inflation