If an instrument has a 10.7% Nominal Return, the inflation rate is 3.1%, and your tax rate is 28%, what’s your approximate “Real After-Tax Return?”
a. 4.6%
b. 7.6%
c. 5.8%
d. none of the above
To calculate the approximate "Real After-Tax Return," you first need to determine the "Real Return" and then subtract the "Tax Rate" from it.
Here's how you can calculate it:
1. Subtract the inflation rate from the nominal return to determine the "Real Return."
Real Return = Nominal Return - Inflation Rate
Real Return = 10.7% - 3.1%
Real Return = 7.6%
2. Subtract the tax rate from the real return to calculate the "Real After-Tax Return."
Real After-Tax Return = Real Return - Tax Rate
Real After-Tax Return = 7.6% - 28%
Real After-Tax Return = -20.4%
Since the calculated Real After-Tax Return is negative (-20.4%), none of the options provided (a, b, c) are correct.