Assignment:
If half the interest earned on the savings portion of an insurance policy were taxable, would it still be possible for taxpayers to eliminate their taxable income, in the absence of tax-rule restrictions and market frictions? Illustrate your answer to this question by assuming that the taxpayer’s taxable income before arbitrage strategies is $100,000 and the before-tax interest rate is 10%.
Provide complete and step by step solution for the question and show calculations and use formulas.