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

question 106

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 Dora to make the tax progressive with respect to average tax rates? What is the minimum tax that would need to beassessed on Dora to make the tax progressive with respect to effective tax rates? Taxpayer Salary Muni-Bond Interest Total TaxDiego 30,000 10,000 1,500Dora 50,000 5,000 ???

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