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You put money into an account that earns an 8 percent nominal interest rate. The inflation rate is 5 percent, and your marginal tax rate is 10 percent. What is your after-tax real rate of interest?

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mltn1980

Answer:

  • What is your after-tax real rate of interest?

2,10%

Explanation:

First, it's necessary to deduct the taxes paid from the nominal rate of 8%.  

Nominal Rate 8% * 0,90 = 7,20%  

Then to the result of the interest rate after taxes, we deduct the inflaction rate:  

After Tax Rate : (1+7,2%)/(1+5%) -1 = 2,1%  

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