If Tom invests $40,000 in a taxable corporate bond that provides a 8 percent before-tax return, how much will Tom's investment be worth in either 8 or 20 years from now when the bond matures? Assume Tom's marginal tax rate is 35 percent.

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Quizplus · Accepted Answer

Tom's after-tax return is 8% * (1 - 0.35) = 5.2%. Using the formula for compound interest, the future value is calculated as $40,000 * (1 + 0.052)^8 = $60,005 for 8 years and $40,000 * (1 + 0.052)^20 = $110,249 for 20 years.

If Tom Invests $40,000 in a Taxable Corporate Bond That