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?
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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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
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?
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