MsLeik Has $50,000 in an Investment Paying 10% Annual Interest

question 27

Multiple Choice

Ms.Leik has $50,000 in an investment paying 10% annual interest.Each year,she incurs a $600 cash expense relating to the investment.If Ms.Leik's marginal tax rate is 20%,which of the following statements is true?

• A)Ms.Leik's annual after-tax cash flow from this investment is $3,520.
• B)If the interest is taxable but the expense is not deductible,Ms.Leik's annual after-tax cash flow from the investment is $3,400.
• C)If the interest is tax-exempt and the expense is not deductible,Ms.Leik's annual after-tax cash flow is $5,000.
• D)None of the above is true.

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Definitions:

Reciprocity Principle

A social norm suggesting that people are likely to respond to actions with similar actions, contributing to cooperation and social exchange.

Compliance

Superficial, public and transitory change in behaviour and expressed attitudes in response to requests, coercion or group pressure.

Social Responsibility Norm

The idea that we should help people who are dependent and in need. It is contradicted by another norm that discourages interfering in other people’s lives.

Individualistic Societies

Societies that prioritize the needs and rights of the individual over those of the group or community.