Will Invests $20,000 of After-Tax Dollars (AT$)in Tax-Exempt Municipal Bonds

question 39

Multiple Choice

Will invests $20,000 of after-tax dollars (AT$) in tax-exempt municipal bonds which yield 5% per year.He reinvests the interest in the same bonds and holds the bonds for two years.Will's marginal tax rate is 25%.What is his after-tax accumulation at the end of two years?

• A)$21,000
• B)$21,528
• C)$22,000
• D)$22,050

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Definitions:

Partial Equity Method

An accounting method used when an investing entity has significant influence but not full control over the investee, involving recording investments at cost and adjusting for the investor’s share of periodic net income or loss of the investee.

Dividends Received

Income received by investors, typically shareholders of a corporation, from the profits of the company.

Investee

A company in which another entity has invested, granting the investor a level of influence or control over its operations.

Related Expense

Costs that are directly connected to or a result of a specific business activity or operation.