You put money into an account that earns an 8 percent nominal interest rate. The inflation rate is 5 percent, and your marginal tax rate is 10 percent. What is your after-tax real rate of interest?

A. 11.7 percent

B. 2.2 percent

C. 2.7 percent

D. 7.7 percent

After tax real rate will be 2.2 %

So option (b) will be correct answer

Explanation:

We have given nominal interest rate = 8 %

Inflation rate = 5 %

And marginal tax = 10 %

We have to find the after tax real rate interest

After tax real rate of interest is given by

After tax real rate = nominal interest rate (1 - tax rate) - inflation rate

= 8 (1 - 0.1) - 5 = 8*0.9 - 5 = 7.2 - 5 = 2.2 %

So option (b) will be correct answer