Asked by Jordan Parker on Jun 09, 2024
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An investor who is in a 35% federal tax bracket and a 5% state bracket buys a 6.5% yield corporate bond. What is his after-tax yield? (Assume that federal taxes are not deductible against state taxes and vice versa) .
A) 3.9%
B) 4.75%
C) 6.5%
D) 9.9%
Federal Tax Bracket
Federal tax brackets are ranges of income to which different tax rates apply, forming part of the U.S. progressive tax system.
After-tax Yield
The return on an investment after the effects of income taxes are taken into account, reflecting the actual gain to the investor.
Corporate Bond
A debt security issued by a corporation to raise funding, which promises to pay back with interest.
- Identify the influence of tax brackets on investment decisions and compute yields after taxes.
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Learning Objectives
- Identify the influence of tax brackets on investment decisions and compute yields after taxes.