Suppose the Nominal Interest Rate Is 6%,the Tax Rate on Interest

question 14

Essay

Suppose the nominal interest rate is 6%,the tax rate on interest income is 30%,and expected inflation is 3%.
(a)Calculate the expected after-tax real interest rate.
(b)Calculate the expected after-tax real interest rate if the nominal interest rate falls to 4%.
(c)Calculate the expected after-tax real interest rate if the tax rate increases to 50% (with the nominal interest rate at its original value of 6%).
(d)Calculate the expected after-tax real interest rate if expected inflation increases to 5% (with the nominal interest rate at its original value of 6% and the tax rate at its original value of 30%).

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