Given a nominal interest rate of 6 percent, in which case would you earn the hig

Question

Given a nominal interest rate of 6 percent, in which case would you earn the highest after-tax real rate of interest? A. Inflation is 4 percent; the tax rate is 25 percent. B. Inflation is 3 percent; the tax rate is 20 percent. C. Inflation is 2 percent; the tax rate is 15 percent. D. The after-tax real interest rate is the same for all of the above. Given a nominal interest rate of 6 percent, in which case would you earn the highest after-tax real rate of interest? A. Inflation is 4 percent; the tax rate is 25 percent. B. Inflation is 3 percent; the tax rate is 20 percent. C. Inflation is 2 percent; the tax rate is 15 percent. D. The after-tax real interest rate is the same for all of the above. A. Inflation is 4 percent; the tax rate is 25 percent. B. Inflation is 3 percent; the tax rate is 20 percent. C. Inflation is 2 percent; the tax rate is 15 percent. D. The after-tax real interest rate is the same for all of the above.

Explanation / Answer

C. Inflation is 2 percent; the tax rate is 15 percent. Nominal rate=6 percent Inflation is 2 percent; the tax rate is 15 percent. 6=x+2+.15=>x=3.75 in other two cases it is 1.75 and 2.8 respectively

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