Angelina invested $80 000 into a fixed term security at a rate of 8% p.a for one
Question:
Angelina invested $80 000 into a fixed term security at a rate of 8% p.a for one year. Her annual income puts her in the 32.5% marginal tax bracket. She is wondering why you have mentioned that she needs to understand the effects of inflation and taxation on her ‘real’ rate of return. Calculate the following if inflation is at 2.5%.
a. Nominal return (rate and value) for the year.
b. Tax on nominal return (rate and value) for the year
c. After tax return (rate and value) for the year
d. Real after tax rate of return (rate) for the year
e. Inflation adjusted after-tax return in value for the year.
f. Use the values you obtain to explain to Angelina the differences between her nominal, after tax and real rate of return.
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill