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Melinda invests $200,000 in a City of Heflin bond that pays 6% interest. Alternatively, Melinda...

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Accounting

Melinda invests $200,000 in a City of Heflin bond that pays 6% interest. Alternatively, Melinda could have invested the $200,000 in a bond recently issued by Surething Inc. that pays 8% interest and has risk and other nontax characteristics similar to the City of Heflin bond. Assume Melindas marginal tax rate is 25%.

  1. What is her after-tax rate of return for the City of Heflin bond?
  2. How much explicit tax does Melinda pay on the City of Heflin bond?
  3. How much implicit tax does she pay on the City of Heflin bond?
  4. How much explicit tax would she have paid on the Surething Inc. bond?
  5. What is her after-tax rate of return on the Surething Inc. bond?

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