Question

Curtis invests $600,000 in a city of Athens bond that pays 8.25% interest. Alternatively, Curtis could have invested the $600,000 in a bond recently issued by Initech, Inc. that pays 11% interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 28%. What is Curtis's after-tax rate of return on the city of Athens bond?

Answer 1

For the investment on the city of Athens bond, Curtis have an after-tax rate of return of 5.94%.

Step-by-step explanation:

The marginal tax rate affects the interest Curtis will receive for its investment.

For the investment on the city of Athens bond, Curtis have an after-tax rate of return of 5.94%.

`r=(1-MTR)*i=(1-0.28)*0.0825=0.72*0.0825=0.0594=5.94\%`