Question

g Curtis invests $425,000 in a city of Athens bond that pays 6.25 percent interest. Alternatively, Curtis could have invested the $425,000 in a bond recently issued by Initech, Inc. that pays 7.25 percent interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 24 percent. How much explicit tax would Curtis incur on interest earned on the Initech, Inc. bond?

Answer 1

Answer:

The explicit tax would Curtis incur on interest earned on the Initech, Inc. bond is $7,395

Explanation:

The computation of the explicit tax is shown below:

= (Invested amount × interest rate with similar risk) × marginal tax rate

= ($425,000 × 7.25%) × 24%

= $30,812.50 × 24%

= $7,395

We consider the invested amount, similar risk interest rate, and the marginal tax rate. The paying interest rate would not be considered. Hence, ignore it