You put money into an account and earn a real interest rate of 5 percent. Inflation is 2 percent, and your marginal tax rate is 40 percent. What is your after-tax real rate of interest?

Question

Quizplus · Accepted Answer

The after-tax real rate of interest is the real interest rate minus the inflation rate times the marginal tax rate. In this case, the real interest rate is 5 percent, the inflation rate is 2 percent, and the marginal tax rate is 40 percent. So, the after-tax real rate of interest is 5% - 2% * 40% = 2.2%.

You Put Money into an Account and Earn a Real