An Individual Actually Earned a 4% Nominal Return Last Year

Multiple Choice

An individual actually earned a 4% nominal return last year. Prices went up by 3% over the year. Given that the investment income was subject to a federal tax rate of 28% and a state and local tax rate of 6%, what was the investor's actual real after-tax rate of return?

A) -0.36%
B) 0.66%
C) 0.72%
D) 1.45%
E) 2.64% {0.04 * [1 - (0.28 + 0.06) ]}-0.03