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Melinda invests $200,000 in a City of Heflin bond that pays 6 percent interest. Alternatively,

Melinda invests $200,000 in a City of Heflin bond that pays 6 percent interest. Alternatively,

Melinda invests $200,000 in a City of Heflin bond that pays 6 percent interest.  Alternatively, Melinda could have invested the $200,000 in a bond recently issued by Surething Inc. that pays 8 percent interest and has risk and other nontax characteristics similar to the City of Heflin bond. Assume Melinda's marginal tax rate is 25 percent.

a) What is her after-tax rate of return for the City of Heflin bond?

b) How much explicit tax does Melinda pay on the City of Heflin bond?

c) How much implicit tax does she pay on the City Heflin bond?

d) How much explicit tax would she have paid on the Surething, Inc. bond?

e) What is her after-tax rate of return on the Surething Inc. bond?

 
manish jayant 09-Sep-2020

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