Consider the following equation: P_retain = P_cum × The term τ_i in this equation represents:

Question

Quizplus · Accepted Answer

τ_i represents the investor's tax rate on interest income. This is because the term appears in the equation for calculating the after-tax return of a bond investment (P_retain), and interest income is typically subject to taxes. The other answer choices (A) the corporation's tax rate on interest income, (B) the investor's tax rate on capital gains, and (D) the investor's tax rate on cumulative dividends do not make sense in the context of the equation.

Consider the Following Equation: Pretain = Pcum × the Term

Consider the Following Equation: P_retain = P_cum × the Term