Reggie wants to invest $10,000. His options are a. Gibraltar Corporation bonds w
ID: 2336771 • Letter: R
Question
Reggie wants to invest $10,000. His options are a. Gibraltar Corporation bonds with an annual interest rate of 8 percent. b. State of Hawaii bonds with an annual interest rate of 5 percent. c. Series EE savings bonds; a S10,000 investment will pay s14,300 in 5 years. 87. Assume that Zane is a 28 percent marginal tax rate payer, the time value of money mounts invested for 5 years. Which is 6 percent, and Zane intends t option will provide the greatest after-tax return, ignoring state income tax implica- tions? Would your answer change if Zane's marginal tax rate is 33 percent
Explanation / Answer
28% tax rate
after tax rate= before tax*(1-tax)
a)=10000*8%*(1-28%)=576
the after teax rate=8%*(1-28%)=5.76%
b)=10000*5%=500
c)use rate formuale in excel to find the interets rate offereing
=rate(nper,pmt,pv,fv,type)
=rate(5,0,10000,-14300,0)
=6.9%
after tax rate=6.9%*(1-28%)=4.97%
we can see that option A is best
if it is 33%
a)the after tax rate is =8%*(1-33%)=5.36%
b)after tax rate is 5%
c)after tax rate=6.9%*(1-33%)=4.62%
here also option A is best