April receives $50 every six months in interest income from her bond investment. She paid $900 for
Question:
April receives $50 every six months in interest income from her bond investment. She paid $900 for the bond and it will mature in 7 years for $1,000. She can reinvest the semi-annual interest income at 5% compounded annually. Her salary is $83,000 a year. Her marginal tax rate is 40%, which is also the applicable tax rate on interest income. The tax rate on dividend income is 30%. The tax rate on capital gain income is 20%.
1. What is her EAR before-tax if she does not reinvest the interest income?
2. What is her EAR before-tax if she reinvests the interest income?
3. What is her EAR after-tax if she reinvests the interest income and taxes are paid annually?
College Mathematics for Business Economics Life Sciences and Social Sciences
ISBN: 978-0321614001
12th edition
Authors: Raymond A. Barnett, Michael R. Ziegler, Karl E. Byleen