Curtis invests $250,000 in a city of Athens bond that pays 7% interest.Alternatively,Curtis could have invested the $250,000 in a bond recently issued by Initech,Inc.that pays 9% interest with similar risk as the city of Athens bond.Assume that Curtis's marginal tax rate is 28%. How much explicit tax would Curtis incur on interest earned on the Initech,Inc.bond?

Question

Quizplus · Accepted Answer

The explicit tax is calculated on the interest earned from the Initech, Inc. bond. The interest earned is $250,000 * 9% = $22,500. The tax on this interest at a 28% tax rate is $22,500 * 28% = $6,300.

Curtis Invests $250,000 in a City of Athens Bond That