Problem:
Anne's marginal income tax rate is 20 percent. She purchases a corporate bond for $20,000 and the maturity, or face value, of the bond is $20,000.
Required:
Question 1: If the bond pays 8 percent per year before taxes, what is Anne's annual after-tax rate of return from the bond if the bond matures in one year?
Question 2: What is her annual after-tax rate of return if the bond matures in 10 years?
Note: Provide support for your rationale.