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16 August, 22:03

If Tom invests $125,000 in a taxable corporate bond that provides a 8 percent before-tax return, how much will Tom's investment be worth in either 8 or 20 years from now when the bond matures

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  1. 16 August, 23:24
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    This question is missing the Tom's marginal tax rate.

    So, I assume it will be 35%

    ATRR = 0.052; 8yrs: 187,514, 20yrs: 344,528

    Explanation:

    ATRR = (.08 x (1 - 0.35) = 0.052;

    8yrs = $125,000 x (1.052) ^8 = 187,514

    20yrs = $125,000 x (1.052) ^20 = 344,528
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