Question

Assume the following: Pre-tax return = 14.5% Tax rate = 25% Inflation rate = 4% What is your real return?

Answer 1

6.875%

Step-by-step explanation:

In order to compute the real return, first, we have to determine the after-tax return which is shown below:

After-tax return = Pre-tax return - tax rate of Pre-tax return

= 14.5% - 25% × 14.5%

= 14.5% - 3.625%

= 10.875%

And, the inflation rate is 4%

So, the real return would be

= 10.875% - 4%

= 6.875%