An Individual Actually Earned a 4% Nominal Return Last Year

question 44

Multiple Choice

An individual actually earned a 4% nominal return last year. Prices went up by 3% over the year. Given that the investment income was subject to a federal tax rate of 28% and a state and local tax rate of 6%, what was the investor's actual real after-tax rate of return?

• A) -0.36%
• B) 0.66%
• C) 0.72%
• D) 1.45%
• E) 2.64% {0.04 * [1 - (0.28 + 0.06)]}-0.03

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