An individual actually earned a 4% nominal return last year. Prices went up by 3% over the year. Given that the investment income was subject to a federal tax rate of 28% and a state and local tax rate of 6%, what was the investor's actual real after-tax rate of return?

Question

Quizplus · Accepted Answer

The correct answer is A.The investor's actual real after-tax rate of return is -0.36%. This is calculated by taking the nominal return of 4% and subtracting the inflation rate of 3%, and then multiplying the result by the after-tax rate of return of 72%. The after-tax rate of return is calculated by taking the nominal return of 4% and subtracting the federal tax rate of 28% and the state and local tax rate of 6%.

An Individual Actually Earned a 4% Nominal Return Last Year