Question

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

Answer 1

Answer:

6.875%

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%