Opal earned 6% in her savings account. If she is in the 25% tax bracket, what is her after-tax savings rate of return?

Question

Quizplus · Accepted Answer

To calculate Opal's after-tax savings rate of return, we first need to determine how much of her earnings will be taxed. Since she is in the 25% tax bracket, we know that she will be taxed on 25% of her earnings.

Next, we need to calculate how much Opal will earn after taxes. We can do this by multiplying her pre-tax earnings by (1 - tax rate). In this case, her pre-tax earnings are 6%, so:

After-tax earnings = 6% x (1 - 0.25) = 4.5%

Therefore, Opal's after-tax savings rate of return is 4.5%. The correct answer is C.

Opal Earned 6% in Her Savings Account