Theresa Davis is in the 30% personal tax bracket. She is planning to buy $5,000 of...
Theresa Davis is in the 30% personal tax bracket. She is planning to buy $5,000 of HCA (taxable) bonds that offer a 11% interest rate.
Please answer the following questions:
1) How much interest will Ms. Davis earn from the HCA bonds?
2) Mercy Hospital (a not-for-profit corporation) issues tax exempt bonds at an interest rate of 8%. If Ms. Davis buys $5,000 of these bonds, how much interest will she earn?
Homework Answers
1) How much interest will Ms. Davis earn from the HCA bonds?
Interest Ms. Davis will earn from the HCA bonds = Investment amount * interest rate * (1- persona tax rate)
Where,
Investment amount = $5000
Interest rate = 11%
Persona tax rate = 30% or 0.3
Therefore,
Interest Ms. Davis will earn from the HCA bonds = $5000 * 11% * (1-0.3)
= $5000 * 11% * 0.7
= $385.00
2) Mercy Hospital (a not-for-profit corporation) issues tax exempt bonds at an interest rate of 8%. If Ms. Davis buys $5,000 of these bonds, how much interest will she earn?
Interest Ms. Davis will earn from tax exempt bonds = Investment amount * interest rate
Where,
Investment amount = $5000
Interest rate = 8%
Therefore,
Interest Ms. Davis will earn from tax exempt bonds = $5000 * 8%
= $400.00
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