An investor recently purchased a corporate bond that yields 9%. The investor is in the 36% combined federal and state tax bracket. What is the bond’s after-tax yield?

5.76%

Explanation:

Given the following ;

Bond yield = 9%

Tax rate = 36%

After a businesses must have accounted for taxes or deducted all necessary taxes from their income, profit or specific business yield, the rate of return of the investment after this deductions is called the after tax yield. It is calculated using the formula ;

After tax yield = Pretax yield × (1 - tax rate)

After tax yield = 0.09 × (1 - 0.36)

After-tax yield = 0.09 × 0.64

After-tax yield = 0.0576

After-tax yield = 5.76%

This is the rate of return on the corporate bond after deducting the federal and state tax rate.

The bond yield of 9% is the rate of return on the investment prior to the deduction of taxes (Pretax)