Calculate the after-tax nominal interest rate

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Reference no: EM1346175

You deposit $1000 in the bank for one year. CASE 1: inflation = 0%, nom. Interest rate = 10% CASE 2: inflation = 10%, nom. Interest rate = 20%

A. In which case does the real value of your deposit grow the most? Assume the tax rate is 25%.

B. In which case do you pay the most taxes?

C. Calculate the after-tax nominal interest rate, then subtract off inflation to get the after-tax real interest rate for both cases.

Reference no: EM1346175

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