Question

If Tom invests $125,000 in a taxable corporate bond that provides a 8 percent before-tax return, how much will Tom's investment be worth in either 8 or 20 years from now when the bond matures

Answer 1

Answer:

This question is missing the Tom's marginal tax rate.

So, I assume it will be 35%

ATRR= 0.052; 8yrs: 187,514, 20yrs: 344,528

Explanation:

ATRR = (.08 x (1 - 0.35) = 0.052 ;

8yrs =  $125,000 x (1.052)^8 = 187,514

20yrs = $125,000 x (1.052)^20 = 344,528