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?

a. 11.7 percent
b. 2.2 percent
c. 2.7 percent
d. 7.7 percent

After tax real rate will be 2.2 %

So option (b) will be correct answer

Explanation:

We have given nominal interest rate = 8 %

Inflation rate = 5 %

And marginal tax = 10 %

We have to find the after tax real rate interest

After tax real rate of interest is given by

After tax real rate = nominal interest rate ( 1 - tax rate ) - inflation rate

= 8 ( 1 - 0.1 ) - 5 = 8×0.9 -5 = 7.2 - 5 = 2.2 %

So option (b) will be correct answer

what are your options to your question?

the correct answer is:

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