Question

Assuming a​ 1-year, money market account investment at 4.83 percent​ (APY), a 3.55​% inflation​ rate, a 25 percent marginal tax​ bracket, and a constant ​$30,000 ​balance, calculate the​ after-tax rate of​ return, the real​ return, and the total monetary return. What are the implications of this result for cash management​ decisions? Assuming a​ 1-year, money market account investment at 4.83 percent​ (APY), a 25 percent marginal tax​ bracket, and a constant ​$30,000 balance the​ after-tax rate of return is nothing​%. ​(Round to two decimal​ places.)

Answer 1

Step-by-step explanation:

Rate of return = 4.83%

inflation rate =3.55 %

marginal tax bracket = 25 %

after tax rate of return = 4.83 ( 1 - .25 ) = 3.6225 %

after tax inflation rate = 3.55 (m 1 - .25 ) = 2.6625 %

real rate of return = [ (1+3.6225% /1+ 2.6625%) - 1 ] x 100

= .0093 x 100 = .93 %

Total monetary return = 30000 x 3.625 %

= 1087.5

Rate of return is more than rate of inflation , for short term perspective staying invested in money market investment is good option . Real rate of return is not negative at least .