assume an investor's tax rate is 25 percent. the before-tax yield on a security is 12 percent. what is the after-tax yield?

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04-11-2022
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assume an investor's tax rate is 25 percent. the before-tax yield on a security is 12 percent. what is the after-tax yield?

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rafikiedu08 rafikiedu08 · Answer 1 · 2022-11-08T10:47:32-05:00

The after tax yield is 9% where an investor's tax rate is 25 percent and the before-tax yield on a security is 12 percent.

The return that a taxable bond would need to provide in order to match the return on a comparable tax-exempt bond, such as a municipal bond, is known as the tax-equivalent yield.

Investors can use the formula to compare the returns of a tax-free investment with a taxable option.

In general the tax consequences are known as challenging, important, and frequently ignored part of any financial strategy.

After tax yield on security = Pre tax yield × (1 - Tax rate)

= 12% × ( 1 - 25/100)

= 9%

Hence, the after tax yield on security is 9%.

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