You Earn a Nominal Return of 6% on Your Savings

question 68

Short Answer

You earn a nominal return of 6% on your savings and the tax rate is 20%. If the rate of inflation is 2%, what are the before-tax real interest rate and your after-tax rate of return?

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Definitions:

Price Level

The average of current prices across the entire spectrum of goods and services produced in the economy, indicating the cost of living or inflation rate.

Money Market

A segment of the financial market where short-term financial assets with high liquidity are traded.

Increase Spending

A rise in the amount of money that consumers, businesses, or governments are expending, which can stimulate economic activity.

Nominal Value

The face value of a currency or security, not adjusted for inflation or interest; the stated value.