Final answer:
The equation for the expected real after-tax interest rate can be calculated by subtracting the inflation rate and the tax rate from the nominal interest rate.
Step-by-step explanation:
The anticipated real after-tax interest rate can be determined by deducting the inflation rate and the tax rate from the nominal interest rate.
The formula for this calculation is expressed as follows
Expected real after-tax interest rate = Nominal interest rate - Inflation rate - Tax rate
Illustratively, if the nominal interest rate stands at 5%, accompanied by an inflation rate of 3% and a tax rate of 20%, the calculation would yield the expected real after-tax interest rate:
Expected real after-tax interest rate = 5% - 3% - 20% = -18%
This result indicates a negative 18%, signifying that, after accounting for inflation and taxes, the actual purchasing power of the interest earned is diminished.
The formula provides a quantitative assessment of the real value of returns considering the impact of both inflation and taxes on the nominal interest rate.