Question

Could you explain in detail how to calculate the after-tax income of North Carlina Bond, special the part I was underline? why used 100000*4.5%*5%*0.35?  

Tammy, a resident of Virginia, is considering whether to purchase a $100,000 North Carolina bond that yields 4.6% before tax. She is in the 35% Federal marginal tax bracket and the 5% state marginal tax bracket. Tammy is aware that State of Virginia bonds of comparable risk are yielding 4.5%. Virginia bonds are exempt from Virginia tax, but the North Carolina bond interest is taxable in Virginia. Tammy can deduct all state taxes paid on her Federal income tax return. If required, round your computations and answers to the nearest dollar. Determine the after tax income from each bond. Virginia Bond: 4,600 X North Carolina Bond: $ 4,451 → Which of the two options will provide the greater after-tax return to Tammy? Virginia bond ✓ Show transcribed image text Expert Answer o PANKAJ answered this 21,948 answers Was this answer helpful? 4 After tax income from Virginia bond=100000*4.5%=4500 After tax income from North Carolina bond=(100000*4.6%)*(1-5%)+(100000*4.6%*5%*0.35) =4451 so Virgina bond would give after tax higher return

Answer 1

Answer

• Requirement asked

A	Face value	$100,000
B	Rate of interest	4.60%
C = A x B	Interest income before tax	$4,600
D = C x 5%	State marginal tax	$230
E = C - D	Interest income net of state tax	$4,370
F = D x 35%	Federal marginal tax	$81
G = E + F	After tax income for Noth Caroline Bond	$4,451