If Curtis invested in the Initech, Inc. bonds, what would be his after-tax rate of return from this investment?
A) 5.04%
B) 7.00%
C) 6.48%
D) 2.52%
E) None of these

Question

Quizplus · Accepted Answer

To calculate the after-tax rate of return, we need to first calculate the pre-tax rate of return. 
Pre-tax rate of return = (Annual interest payment / Bond price) * 100 
= (60 / 900) * 100
= 6.67% 
Then we need to calculate the income tax on this return. 
Income tax = Pre-tax rate of return * Marginal tax rate 
= 6.67% * 22% 
= 1.47% 
After-tax rate of return = Pre-tax rate of return - Income tax 
= 6.67% - 1.47% 
= 5.20% 
Therefore, the closest option is C - 6.48%.

If Curtis Invested in the Initech, Inc