Curtis invests $300,000 in a city of Athens bond that pays 5.00 percent interest. Alternatively, Curtis could have invested the $300,000 in a bond recently issued by Initech, Incorporated that pays 7.00 percent interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 24 percent. How much explicit tax would Curtis incur on interest earned on the Initech, Incorporated bond?

Question

Quizplus · Accepted Answer

The explicit tax is calculated on the interest earned from the Initech bond. The interest is $300,000 * 7% = $21,000. The tax on this interest at a 24% tax rate is $21,000 * 24% = $5,040.00.

Curtis Invests $300,000 in a City of Athens Bond That