Neco Model Questions Vol1 2019 Economics Question 24

Practice objective / multiple choice question 24 from the 2019 Neco Model Questions Vol1 Economics examination.

Neco Model Questions Vol1 2019 Economics Objective / Multiple Choice Medium Difficulty
Question 24 NECO_MODEL_QUESTIONS_VOL1 • 2019 • ECONOMICS • objective

A commercial bank offers a 3‑year fixed deposit that pays a nominal interest rate of 12 % per annum, compounded annually. The expected inflation rate is 7 % per year and the tax on interest income is 15 %. (i) Using the Fisher equation, determine the real rate of return before tax. (ii) Determine the real rate of return after tax.

Answer Options

A. i) ≈ 3.9 % real before tax; ii) ≈ 2.2 % real after tax
Correct Answer B. i) ≈ 4.7 % real before tax; ii) ≈ 3.0 % real after tax
C. i) ≈ 4.7 % real before tax; ii) ≈ 2.5 % real after tax
D. i) ≈ 5.2 % real before tax; ii) ≈ 3.5 % real after tax
Correct Answer
B
Correct Option:
i) ≈ 4.7 % real before tax; ii) ≈ 3.0 % real after tax

About This Question

This is Neco Model Questions Vol1 2019 Economics Question 24. It is one of the objective questions from the 2019 Neco Model Questions Vol1 Economics examination.

Difficulty level: Medium .

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