- A person's savings eams an effective annual rate of return of 9%. Income tax is...

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Question

- A persons savings eams an effective annual rate of return of 9%. Income tax is paid on the interest earned at a rate of 55

business finance

Answer 1

Answer #1

Annual rate of return after tax = 9%*(1-0.55) = 4.05%

Annual after tax real rate of return = (1+ after tax return)/(1+ inflation rate) - 1

Annual after tax real rate of return = (1+ 0.0405)/(1+ 0.03) - 1 = 1.010194 - 1 = 0.010194 = 1.0194 % = 1.02% (round to 2 decimals)

Answer : 1.02% (Thumbs up please)

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Answer 2

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