To Be Indifferent Between Investing in the Two Bonds, the Moe's

question 9

Essay

To be indifferent between investing in the two bonds, the Moe's, Inc. bond should provide Namratha t same after-tax rate of return as the city of Watkinsville bond (4.5%). To solve for the required pre-tax rate of return we can use the following formula: After-tax return = Pre-tax return × (1 - Marginal Tax Rate).
Moe's, Inc. needs to offer a 6% interest rate to generate a 4.5% after-tax return and make Namratha indifferent between investing in the two bonds.
4.5% = Pre-tax return × (1 - 25%); Pre-tax return = 4.5%/(1 - 25%) = 6%
-Given the following tax structure, what is the minimum tax that would need to be assessed on Lizzy to make the tax progressive with respect to average tax rates? What is the minimum tax that would need to beassessed on Lizzy to make the tax progressive with respect to effective tax rates? Taxpayer Salary Muni-Bond Interest Total TaxMort 20,000 5,000 4,000Lizzy 80,000 30,000 ???

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Definitions:

Different Financial Instruments

Various types of investment assets, including stocks, bonds, derivatives, and mutual funds, that provide a way for individuals and businesses to invest, finance operations, or manage risk.

Financial Instrument

A contract that leads to the creation of a financial asset for one party and results in a financial liability or equity instrument for another party.

Market Risk

The risk that the value of a financial instrument will fluctuate because of changes in foreign exchange rates, market interest rates or some other market prices.

Credit Risk

The risk of loss due to a borrower's failure to make payments on any type of debt.