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Assume that Jane Adams pays income taxes at a 35 percent rate. What would be the after-tax amount on $100 of interest income she receives?

$35

$100

$70

$65

Taxes on investment income reduce what you keep by the tax rate, so you keep 65% of the gross interest when the rate is 35%. Multiply the gross interest by 0.65: 100 × 0.65 = 65. So the after-tax amount is $65.

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