If Tom invests $125,000 in a taxable corporate bond that provides a 8 percent before-tax return, how much will Tom's investment be worth in either 8 or 20 years from now when the bond matures

Question

Cherish Oneill

Law

27 May, 22:43

If Tom invests $125,000 in a taxable corporate bond that provides a 8 percent before-tax return, how much will Tom's investment be worth in either 8 or 20 years from now when the bond matures

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Humberto · Answer 1

This question is missing the Tom's marginal tax rate.

So, I assume it will be 35%

ATRR = 0.052; 8yrs: 187,514, 20yrs: 344,528

Explanation:

ATRR = (.08 x (1 - 0.35) = 0.052;

8yrs = $125,000 x (1.052) ^8 = 187,514

20yrs = $125,000 x (1.052) ^20 = 344,528