Heidi invests $1,000 in a taxable bond for 5 years that earns 4% interest per year. Her marginal tax rate is 15%. What is her after- tax accumulated investment at the end of year 5 (assume that bond interest is reinvested at the same rate)?

Question

Quizplus · Accepted Answer

The after-tax interest rate is 4% * (1 - 0.15) = 3.4%. Using the formula for compound interest, the accumulated amount is $1,000 * (1 + 0.034)^5 = $1,182.

Heidi Invests $1,000 in a Taxable Bond for 5 Years