Heidi invests $1,000 in a taxable bond for 5 years that earns 4% interest per year.Her marginal tax rate is 15%.What is her after-tax accumulated investment at the end of year 5 (assume that bond interest is reinvested at the same rate)?

Question

Quizplus · Accepted Answer

The after-tax accumulated investment is $1,182. This is calculated by taking the initial investment of $1,000 and multiplying it by the factor (1 + r)^n, where r is the interest rate and n is the number of years. In this case, r = 0.04 and n = 5, so the factor is (1 + 0.04)^5 = 1.2167. Multiplying this by the initial investment gives $1,182. The after-tax accumulated investment is then calculated by subtracting the taxes from the total accumulated investment. In this case, the taxes are 15% of the interest earned, which is $1,182 - $1,000 = $182. Subtracting this from the total accumulated investment gives $1,182.

Heidi Invests $1,000 in a Taxable Bond for 5 Years