Melindainvests $200,000 in a City of Heflin bond that pays 6 percent interest. Alternatively, Melindacould have invested the $200,000 in a bond recently issued by Surething, Inc. that pays 8 percent interest with similar risk and other nontax characteristics to the City of Heflin bond. Assume Melinda's marginal tax rate is 25 percent.
a. What is her after-tax rate of return for the City of Heflin bond?
b. How much explicit tax does Melinda pay on the City of Heflin bond?
c. How much implicit tax does she pay on the City of Heflin bond?
d. How much explicit tax would she have paid on the Surething, Inc. bond?
e. What is her after-tax rate of return on the Surething, Inc. bond?