An investment is available that pays a tax-free 8%. The corporate tax rate is 35%. Ignoring risk,what is the pre-tax return on taxable bonds?
A) 4.20%
B) 5.00%
C) 8.47%
D) 12.3%
E) None of these.

Question

Quizplus · Accepted Answer

To find the pre-tax return on taxable bonds equivalent to an 8% tax-free return, use the formula: Pre-tax return = Tax-free return / (1 - Tax rate). So, 8% / (1 - 0.35) = 12.3%.

An Investment Is Available That Pays a Tax-Free 8