I:18-19 After-Tax Rates of Return. Suppose a bond is taxable for both federal and state purposes.

Let Rb = the BTROR on the bond, tfed = the federal tax rate, and tst = the state tax rate.

Determine the ATROR (i.e., after federal and state taxes) if:

a. The state tax is not deductible for either federal or state purposes.

b. The state tax is deductible for federal but not for state purposes.

After algebraic simplification, each answer should take the form: Rb( ), with the rest of the answer inside the parentheses.

c. After determining the formulas for Parts a and

b, determine the ATRORs assuming that the BTROR (Rb) is 8%, the federal tax rate (tfed) is 40%, and the state tax rate

(tst) is 6%.