(2) Kate Foley invests $200,000 in a City of Langh bond that pays 6 percent interest. Alternatively, Kate could have invested the $200,000 in a bond recently issued by Red Top Inc. that pays 8 percent interest and has risk and other nontax characteristics similar to the City of Langh bond. Assume Kates marginal tax rate is 25 percent.

(a) What is her after-tax rate of return for the City of Langh bond?

(b) How much explicit tax does Kate pay on the City of Langh bond?

(c) How much implicit tax does Kate pay on the City of Langh bond?

(d) How much explicit tax would she have paid on the Red Top Inc. bond?

(e) What is her after-tax rate of return on the Red Top Inc. bond?