Mrs. Z, a resident of Virginia, paid $50,000 for a bond issued by Pennsylvania that paid $3,400

Question:

Mrs. Z, a resident of Virginia, paid $50,000 for a bond issued by Pennsylvania that paid $3,400 interest this year. Her marginal state income tax rate is 6 percent. Under Virginia law, interest on debt obligations issued by another state is taxable. Mrs. Z can deduct state income tax on her Form 1040, and her marginal federal income tax rate is 25 percent. Compute her after-tax rate of return on the bond.