Question

assuming a 1-year, money market account investment at 4.68 percent (apy), a 2.72% inflation rate, a 28 percent marginal tax bracket, and a constant $70,000 balance, calculate the after-tax rate of return, the real return and the total monetary return. what are the implications of this redult for cash management decisions?

Assuming a 1-year, money market account investment at 4.68 percent (apy), a 28 percent marginal tax bracket, and a constant $70,000 balance the after-tax of return is ___% (round to two decimal places)

Answer 1

Investment =$ 70,000

1 year market return = 4.68 % (apy)

Inflation rate = 2.72%

Tax rate = 28%

After tax rate of return = 1 year market return * ( 1 - tax rate)

= 4.68% * (1 - 0.28) = 3.3696 %

Real Return = After tax return - inflation rate = 3.3696 % - 2.72 % = 0.6496 %

Total Monetary return = Investment * After tax return = $ 70,000 * 3.3696% = $ 2,358.72

After tax rate of return = 1 year market return * ( 1 - tax rate)

= 4.68% * (1 - 0.28) = 3.3696 % = 3.37 % (round to 2 decimal point)