Question

Assuming a 25% (1/4) tax rate, what would be the real return on investment after taxes if the nominal interest rate is 8%

Nominal Interest Rate	Inflation	Real Return After Taxes
4%	4%
8%	4%
12%	4%
16%	4%

Note: Please use whole numbers for the percent, but do not include the % sign. It will be marked incorrect otherwise.

Example. If the answer is 25%, write 25

Group of answer choices

-1%

8%

2%

5%

Answer 1

I had tried to explain as much clear as possible.

STEP 1 Firstly the real interest rate before tax is 4 percent, that is nominal interest rates minus inflation rate.

STEP 2 Then calculate tax on the investment that is calculated on nominal interest rate that is 2 percent (25%of 8).

STEP 3 Now, at last actual real return will be 2 percent as interest rate before tax(step 1) minus tax rates calculated (step 2)

I had also provided a picture to make it all clear.