You are considering investing in a bond that matures 20 years from now. It pays an annual end-of-year coupon rate of interest of 8.75 percent, or $87.50 per year. The bond currently sells for $919.
Your marginal income tax rate (applied to interest payments) is 28 percent.
Capital gains are taxed at the same rate as ordinary income. What is your after-tax rate of return if you buy this bond today and hold it until maturity?