Question

Curtis invests $450,000 in a city of Athens bond that pays 6.50 percent interest. Alternatively, Curtis could have invested the $450,000 in a bond recently issued by Initech, Incorporated that pays 7.75 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, Incorporated bond

Answer 1

$8,370

Step-by-step explanation:

Calculation for How much explicit tax would Curtis incur on interest earned on the Initech, Incorporated bond

Using this formula

Explicit tax = (Amount Invested× Interest percentage)×Marginal tax rate

Let plug in the formula

Explicit tax =($450,000×7.75%)×24%

Explicit tax =$34,875×24%

Explicit tax =$8,370

Therefore the amount of explicit tax that Curtis would incur on interest earned on the Initech, Incorporated bond will be $8,370