Curtis invests 250000 in a city of Athens bond that pays 7 i

Curtis invests $250,000 in a city of Athens bond that pays 7% interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Inc. that pays 9% interest with similar risk as the city of Athens bond. Assume that Curtis\'s marginal tax rate is 28%.

How much explicit tax would Curtis incur on interest earned on the Initech, Inc. bond

Solution

The explicit tax Curtis is going to incur on interest earned on the Initech, Inc. bond is as follows:

($250,000 x 0.09) x 28% = $6,300.

It is the tax on the interest income earned from Initech, Inc. bond.

Interest rate is 9%, tax rate is 28%.