Question

1. Jorge and Anita, married taxpayers, earn $160,000 in taxable income and $40,000 in interest from an investment in City of Heflin bonds. Using the U.S. tax rate schedule for married filing jointly, how much federal tax will they owe?

2. Melinda invests $300,000 in a City of Heflin bond that pays 6.4 percent interest. Alternatively, Melinda could have invested the $300,000 in a bond recently issued by Surething, Inc. that pays 8 percent interest with similar risk and other nontax characteristics to the City of Heflin bond. Assume Melinda’s marginal tax rate is 20 percent. What is her after-tax rate of return for the City of Heflin bond?

3. Melinda invests $300,000 in a City of Heflin bond that pays 6.4 percent interest. Alternatively, Melinda could have invested the $300,000 in a bond recently issued by Surething, Inc. that pays 8 percent interest with similar risk and other nontax characteristics to the City of Heflin bond. Assume Melinda’s marginal tax rate is 20 percent. What is her after-tax rate of return on the Surething, Inc. bond?

***If I can get answers for these three questions and explanations for how you got the three answers, it would be greatly appreciated. Thanks!

Answer 1

(1) using 2019 tax rates. Federal tax as $40000 on $160000 tuxable income is tax exempt interest For marred filling jointly $ 9235+ 0.22( $160000 - $80250) & $9235t $17545 e $ 26780 (2) Interest on the cely of Heflon Bond is tax exempt Melinda's aftee taa - date of return on the bond is equal to peten aate of retum (Glpercent) Mence' after tax retuon - 604% 13 Hee after tax income from the Supething Ine. bond would be $24000 ($300000x 2%) 64800 ( $24000x 20% ) - 19200 Thus, her after tex retuon from the seus thing Inc bond would be $19200 0 xico. 64% $30000