If Your After-Tax Realized Real Interest Rate Was 1 Percent

question 8

Multiple Choice

If your after-tax realized real interest rate was 1 percent over the past year and the inflation rate was 3 percent, what was the nominal interest rate on your one-year bond if your tax rate was 15 percent?

• A)4.45 percent
• B)4.7 percent
• C)5.0 percent
• D)5.25 percent

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Definitions:

Consume

The process of consuming a product or service to fulfill needs or desires.

Utility Function

A utility function is a representation of preferences over a set of goods and services, showing the level of satisfaction or utility that different bundles of goods provide to a consumer.

Consumption

The use of goods and services by households or individuals for personal needs or to derive utility.

Income

Financial earnings generated through employment, investments, or other sources, contributing to an individual's purchasing power.