You Put Money in an Account and Earn a Real

question 34

Multiple Choice

You put money in an account and earn a real interest rate of 10 percent. Inflation is 4 percent, and your marginal tax rate is 40 percent. What is your after-tax real interest rate?

• A) 1.8 percent
• B) 2.4 percent
• C) 3.2 percent
• D) 4.4 percent

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Definitions:

Return On Investment

A measure used to evaluate the efficiency or profitability of an investment, calculated by dividing the net profit by the cost of the investment.

Discount Rate

The interest rate charged to commercial banks and other financial institutions for loans received from the central bank or the rate used in discounted cash flow analysis to determine the present value of future cash flows.