A person received 4% nominal interest. The inflation rate was -2% and the tax rate was...
A person received 4% nominal interest. The inflation rate was -2% and the tax rate was 25%. This person received an after-tax real interest rate of 5%.
Group of answer choices
True
False
Homework Answers
True
Nominal interest rate = 4%=0.04
Tax rate = 25%
So, the after tax return = 0.04×(1-0.25) = 0.03 i.e. 3%
Real interest rate = (1+0.03)/(1-0.02) - 1
= 0.051
=5.1% ~5%
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