Ask Question
27 March, 03:26

Assume that John's marginal tax rate is 40%. If a city of Austin bond pays 6% interest, what interest rate would a corporate bond have to offer for John to be indifferent between the two bonds?

A. 30%

B. 10%

C. 6%

D. 3.6%

E. None of these

+1
Answers (1)
  1. 27 March, 03:37
    0
    B. 10%

    Explanation:

    Given that

    Tax rate = 40%

    Net tax rate = 6%

    Recall that

    Gross interest = Net of tax rate / (1 - tax rate)

    Therefore,

    = 0.06 : (1 - 0.40)

    = 0.06 : 0.60

    = 0.1

    = 10%
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Assume that John's marginal tax rate is 40%. If a city of Austin bond pays 6% interest, what interest rate would a corporate bond have to ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers