Suppose that the nominal interest rate is 10 percent, the rate of inflation is 1 percent, and
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Question:
Suppose that the nominal interest rate is 10 percent, the rate of inflation is 1 percent, and a tax rate of 20 percent applies to nominal interest income.
If someone saves $1,000 and earns interest income on that saving at the nominal interest rate given above, how much tax will they owe after one year?
What is the real after-tax rate of interest?
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