Suppose, that you put $100 in the bank on january 1, 2017. this time around, however, the annual nominal interest rate is 6 percent and the inflation rate is 4 percent. much to your chagrin, the federal government treats interest income like wages and salaries and you have to pay income tax. suppose you are in the 25% income tax bracket. the real return on your investment, i. e. after you've paid your tax liability is . now, suppose that the nominal interest rate instead is 12 percent and inflation is 10 percent. in this case, the real after-tax return on your $100 deposit is .suppose, that you put $100 in the bank on january 1, 2017. this time around, however, the annual nominal interest rate is 6 percent and the inflation rate is 4 percent. much to your chagrin, the federal government treats interest income like wages and salaries and you have to pay income tax. suppose you are in the 25% income tax bracket. the real return on your investment, i. e. after you've paid your tax liability is . now, suppose that the nominal interest rate instead is 12 percent and inflation is 10 percent. in this case, the real after-tax return on your $100 deposit is