You put money in an account and earn a real interest rate of 10 percent, inflation is 3 percent, and your marginal tax rate is 40 percent. Which of the following is your after-tax real rate of interest?
A)4.8 percent
B)3.2 percent
C)2.8 percent
D)1.8 percent

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 10 percent, the inflation rate is 3 percent, and the marginal tax rate is 40 percent. So, the after-tax real rate of interest is 10% - 3% * 40% = 4.8%.

You Put Money in an Account and Earn a Real