Compute the after-tax rate of return

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Reference no: EM131810319

Using the answer from Problem 12-9, set up the equation to compute the after-tax rate of return for each scenario:

(a) A $5000 corporate bond costs $4600, paying $500 interest at the end of each year for the next 5 years. At the end of 5 years you get $5000.

(b) A federal-income-tax-free (on interest only) municipal bond costing $3000, paying $250 at the end of each year for 5 years, and $2500 at the end of the 5 years. State and local income taxes must be paid.

(c) A tax-deferred savings plan in which you invest $4000 for 5 years. The plan earns 8% annual interest and you get back your $4000 plus interest at the end of 5 years. Contributed by D. P. Loucks,Cornell University Corporate Taxes

Problem 12-9

Given the following data, compute your combined income tax rate (CTR) assuming you deduct allowable expenses on yourincometax forms: a before-tax MARRof5%,aninflation rateof3%,a federalincome tax rate of 28%, a state income tax rate of 6%, a local city income tax of 3%, and a capital gains tax rate of 15%, as applicable. Contributed by D. P. Loucks, Cornell University

Reference no: EM131810319

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