Final answer:
The question pertains to the tax liability based on taxable income for a single taxpayer named Chuck, including the tax exemption on interest from city bonds, and the yield calculation for a bond investment. It involves understanding marginal tax rates and how they apply to an individual's income.
Step-by-step explanation:
The subject of this question involves understanding the impact of taxable income and the effect of interest income from investments on a taxpayer's financial situation, specifically within the context of U.S. tax rates and bond investment outcomes. Chuck, a single taxpayer with $77,500 in taxable income, would fall under a specific tax bracket based on the U.S. federal tax rate schedule. To determine Chuck's tax liability, we would locate his income in the tax table and calculate the tax owed according to the marginal tax rates for that bracket. Additionally, it's important to note that the $12,600 interest income from city of Heflin bonds would be exempt from federal taxes.
When considering the bond investment, the yield or total return includes interest payments plus any capital gains. For example, if a bond with a face value of $1,000 and an 8% coupon rate is sold for less than its face value due to rising interest rates, the investor's yield on the bond will be the interest plus the capital gain achieved, calculated as ($1080 - $964)/$964 = 12%.
The concept of marginal tax rate is also key to understanding this question. Using the given marginal tax rate brackets, one can determine Chuck's marginal tax rate, which is the rate at which his last dollar of income is taxed.