Question

Diana invests $25,000 in a bank at the beginning of the year. She will receive 7% interest at the end of the year, but she will have to pay a 16% tax on the interest received.

A.) How much interest will Diana earn after she pays the tax?

B.) What percent of Diana's investment is the interest after paying the tax?

Answer 1

A) $1470

B) 5,88%

Explanation:

B) Diana will end up with 100% -16% = 84% of the interest she earns, so her effective interest rate is ...

... 7% × 84% = 5.88%

A) Diana's investment earns ...

... 0.0588 × $25000 = $1470