If Tom invests $70,000 in a taxable corporate bond that provides a 5 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.

Question

Quizplus · Accepted Answer

The after-tax return is 3.25% (5% * (1 - 0.35)). Using the formula for compound interest, the investment will be worth $90,410 in 8 years and $132,709 in 20 years.

If Tom Invests $70,000 in a Taxable Corporate Bond That