Given a nominal interest rate of 12 percent,when would you earn the highest after-tax real interest rate?
A) Inflation is 2 percent,and the tax rate is 50 percent.
B) Inflation is 3 percent,and the tax rate is 30 percent.
C) Inflation is 5 percent,and the tax rate is 20 percent.
D) Inflation is 6 percent,and the tax rate is 40 percent.

Question

Quizplus · Accepted Answer

The after-tax nominal interest rate is highest in option C due to the lowest tax rate of 20%. The real interest rate is calculated by subtracting inflation from the after-tax nominal rate, and option C has a moderate inflation rate of 5%, resulting in the highest after-tax real interest rate.

Given a Nominal Interest Rate of 12 Percent,when Would You