You put money into an account that earns a 8 percent nominal interest rate. The inflation rate is 3 percent, and your marginal tax rate is 25 percent. What is your aftertax real rate of interest?
a. 
3 percent 

b. 
3.75 percent 

c. 
5 percent 

d. 
6 percent 
Want to see the full answer?
Check out a sample Q&A hereRelated Economics Q&A
Find answers to questions asked by students like you.
Q: If the nominal interest rate is 5 percent and the inflation rate is 2 percent, what is the real…
A: Nominal interest rate is the rate of interest before the adjustments of inflation. given: Nominal…
Q: Suppose the inflation premium is 2 percent and the nominal interest rate is 1 percent. a. What is…
A: Given Inflation premium = 2 % Nominal interest rate= 1 %
Q: If the nominal interest rate is 5 percent and the real interest rate is 7 percent, then the…
A: The Nominal Interest is obtained by adding real interest & inflation. i.e; Nominal Interest Rate…
Q: Assume the nominal interest rate is 17 percent and the expected rate of inflation is 12 percent.…
A: The real interest rate refers to the inflation adjusted interested rate. It can be calculated by…
Q: There is a persistent fear that there will be a high level of deflation. Many economists warn that…
A: Click to see the answer
Q: If the nominal interest rate is 5 percent and the rate of inflation is 2 percent, then the real…
A: Inflation rate measures the rise in the general price level in an economy. The opposite of inflation…
Q: There is a persistent fear that there will be a high level of deflation. Many economists warn that…
A: Following are the given values: Nominal interest rate = 5.25% Expected inflation = 1.50% Actual…
Q: Given a nominal interest rate of 5 percent, in which of the following cases would you earn the…
A: Nominal interest rate: A nominal interest rate refers to the estimation of interest rate without…
Q: The real interest rate is approximately equal to A. the growth in real GDP. B. the nominal interest…
A: since you have asked multiple questions and according to our policy we can only solve one question…
Q: Assume that in Azerbaijan, Alyana deposits $5,000 in the bank for a single year. Given the following…
A: Inflation refers to an increase in the general price level from one period to another. Inflation is…
Q: Suppose you take out a multiyear loan from a bank with an intrest rate of 5%. a. The rate you are…
A: Since you have posted a question with multiple subparts, we will solve first three subparts for…
Q: The Nominal Interest rate and inflation rate in an economy is same. What will be the real interest…
A: The interest rate which is irrespective of inflation is known as nominal interest rate. And the…
Q: If Dave loans funds at 2 percent while the inflation rate is 4 percent, his real rate of interest is…
A: Nominal Interest Rate(i) is the percentage(%) increase in money that borrower pays without taking…
Q: 1. Your wealthy uncle gave you $100,000 in stocks on January 1, 2002. If the value of your stocks…
A: The nominal interest rate (or money interest rate) is the percentage increase in money you pay the…
Q: f the nominal interest rate is 10% and the inflation rate is 5%. What is the real interest rate? (Do…
A: The real interest rate is the rate of interest an investor, saver or lender receives after allowing…
Q: If the tax is 40 percent compute the before tax interest rate and the after tax real interest rate…
A: Real interest rate refers to the interest rate that adjusted with the inflation. Real interest rate…
Q: 4. If the nominal interest rate is fixed over the life of a loan, the consequences of inflation…
A: In an economy, there is a significant relationship between nominal rate, real rate and inflation…
Q: Find the value of inflation if real interest rate is 0 and nominal interest rate is 4.6%
A: We are given that: Real interest rate = 0% Nominal interest rate = 4.6% Note Real interest rate is…
Q: If inflation is currently 2.55% and a bank is lending money at 7.75% interest, what is the real…
A: Inflation (I) = 2.55% Bank interest rate (R) = 7.75%
Q: What is the value of inflation when real interest rate is 6% and the nominal interest rate is also…
A: # The difference between Nominal interest rate and real interest rate gives us the value of…
Q: If in the banking sector the nominal interest rate is 3% and inflation rate is 1.7% Calculate what…
A: The information being given is: Nominal interest rate in banking rate = 3% Inflation rate = 1.7% We…
Q: The real interest rate is 6 percent a year and the income tax rate is 50 percent. With no inflation,…
A: After tax return before inflation = Nominal return ×(1tax rate)= 6% × (150%)=0.03=0.03×100=3%
Q: Explain how the current U.S. tax system levies taxes on capital gains and earned interest. What does…
A: Capital gains have historically been taxed at lower rates than ordinary income in the history of the…
Q: Explain how the current U.S. tax system levies taxes on capital gains and earned interest. What does…
A: A capital gain occurs when a capital asset (investment or real estate) is sold at a price higher…
Q: Explain the meanings of nominal interest rate and realinterest rate. How are they related?
A: The interest rate is the amount of payment that is charged by a lender on a borrower for the use of…
Q: Chapter Problem 4 Qu In 2006, an economy was at full employment. The quantity of money was growing…
A: As per Fisher Effect Real Interest Rate = Nominal Interest Rate  Inflation Rate A Nominal Interest…
Q: In an economy the real interest rate and inflation is 3% and 1.8% respectively Find nominal…
A: The information being given is: Real interest rate = 3% Inflation rate = 1.8% We have to calculate…
Q: how the nominal interest rate, the real interest rate, and inflation are relatedthrough the Fisher…
A: The interest rate in economics is that amount of payment that a lender charges on a borrower in…
Q: If the real rate of interest is 3% and the expected rate of inflation is 6%m calculate the nominal…
A: The interest rate generally refers to the amount paid to the lender in return for the borrowed money…
Q: f the nominal interest rate is 9 percent and the real interest rate is 3 percent, then the inflation…
A: Fisher effect states that the Inflation rate is equal to the nominal rate minus the real Interest…
Q: 1. You deposit $5000 in the bank for one year. CASE 1: inflation = 0%, nom. interest rate = 20%…
A: a. Case 1. Real interest rate = Nominal Interest rate  Inflation Real interest rate…
Q: Paul and Mary wanted to get married, and they wished to purchase a house for the new family.…
A: Inflation is the overall rose in the general price level in an economy. It shows the rise in the…
Q: 1. Calculate the following: a) real interest rate if expected inflation is 3% and nominal interest…
A: DISCLAIMER “Since you have asked multiple question, we will solve the first question for you as per…
Q: Assume you just deposited $1,000 into a bank account. The current real interest rate is 3% and…
A: A real interest rate is adjusted to remove the effects of inflation while a nominal interest rate…
Q: Write the way for answer: Suppose the expected inflation rate is 0.01, the tax rate on interest…
A: Expected real after tax interest rate is  0.145 Inflation rate  0.01 Tax rate on interest income…
Q: 37) If the expected inflation rate was 2.5%, the expected real interest rate was 4.0%, and the real…
A: Given; Expected inflation rate= 2.5% Expected real interest rate= 4.0% Real interest rate= 5.5%
Q: Write the way for answer: Suppose the expected inflation rate is 0.01, the tax rate on interest…
A: Expected real after tax interest rate is  0.145 Inflation rate  0.01 Tax rate on interest income…
Q: Work It Out In the country of Wiknam, the velocity of money is constant. Real GDP grows by 3 percent…
A: a. According to quantity theory of money Growth rate of money stock + growth rate of velocity =…
Q: Distinguish between nominal and real interest rates. Which is more relevant in making investment and…
A: Real interest rate was taken into consideration to remove the effects of inflation, so that the real…
Q: Distinguish between nominal and real interest rates. Which is more relevant in making investment and…
A: The nominal interest rate is the rate of interest provided by the economy over the investments. This…
Q: 4. Inflation can redistribute wealth between borrowers and savers. Consider the following four…
A: Inflation is an abnormal increase in the general price level of the economy. As a result, too much…
Q: 20.Which of the following statements is correct? a The interest rate that is usually reported is…
A: c If the nominal interest rate has decreased and the real interest rate has also decreased,…
Q: Using the table below, find the real value of a $1200 payment and find the amount that this $1200…
A: The consumer price index measures the price changes in the market basket of goods and services…
Q: Last year the Carter family earned $50 000. This year their income is $52 000. In an economy with an…
A: The income for the family would be the total amount of money which would be earned by the family.…
Q: Do you think a negative nominal interest rate can happen? What about a negative real interest rate?…
A: When people borrow money from the lender, a proportion of the amount borrowed is paid additionally…
Q: 1) The net revenue of a company rose 3.6 %, while inflation rate was 3.0 %. Calculate the relative…
A: The formula is, Real change in revenue as percentage = [{1 + Nominal change in revenue as…
Q: 1) The net revenue of a company rose 3.6 %, while inflation rate was 3.0 %. Calculate the relative…
A: Inflation rate refers to an increase in the general prices of goods and services in the economy…
Q: Mary will earn $42,544 this year and $21,839 next year. The real interest rate is 15% between this…
A: The intertemporal budget constraint shows the amount of consumption desired by the households in two…
Q: You deposit $200 in a savings account on January 1, and the bank pays you interest of $10 at the…
A: Real interest rate is adjusted for the inflation.
Q: . How does government managed inflation? 4. What is Consumer Price Index?
A: Inflation is outlined as a amendment within the general level of costs of products and services…