Miles invests $20,000 in a taxable bond for 5 years that earns 5% interest per year. His marginal tax rate is 15%. What is his after- tax accumulated investment at the end of year 1?

Question

Quizplus · Accepted Answer

The interest earned in the first year is $20,000 * 5% = $1,000. After paying 15% tax on this interest, the after-tax interest is $1,000 * (1 - 0.15) = $850. Therefore, the after-tax accumulated investment at the end of year 1 is $20,000 + $850 = $20,850.

Miles Invests $20,000 in a Taxable Bond for 5 Years