After-tax Yield

Tariq Santos expects a fully taxable yield of 8.20% on a $17,209 investment and assumes a 24% marginal tax rate applies to the income. Ignoring other taxes, what is the after-tax yield?

1. A.10.79%This is the taxable-equivalent transformation, which answers the opposite comparison.
2. B.6.23%This multiplies the pretax yield by the percentage retained after tax.
3. C.7.96%This subtracts a decimal tax rate from percentage points of yield, mixing units.
4. D.10.17%This increases yield for taxes instead of reducing the amount retained.

Why: After-tax yield on fully taxable income is the pretax yield multiplied by one minus the applicable tax rate. This calculation answers how much of the stated yield the investor keeps after the assumed tax.

Rosa Ito expects a fully taxable yield of 4.90% on a $93,133 investment and assumes a 16% marginal tax rate applies to the income. Ignoring other taxes, what is the after-tax yield?

1. A.4.12%This multiplies the pretax yield by the percentage retained after tax.
2. B.5.68%This increases yield for taxes instead of reducing the amount retained.
3. C.4.74%This subtracts a decimal tax rate from percentage points of yield, mixing units.
4. D.5.83%This is the taxable-equivalent transformation, which answers the opposite comparison.

Why: After-tax yield on fully taxable income is the pretax yield multiplied by one minus the applicable tax rate. This calculation answers how much of the stated yield the investor keeps after the assumed tax.

Noah Ivanov expects a fully taxable yield of 5.90% on a $13,693 investment and assumes a 40% marginal tax rate applies to the income. Ignoring other taxes, what is the after-tax yield?

1. A.9.83%This is the taxable-equivalent transformation, which answers the opposite comparison.
2. B.8.26%This increases yield for taxes instead of reducing the amount retained.
3. C.3.54%This multiplies the pretax yield by the percentage retained after tax.
4. D.5.50%This subtracts a decimal tax rate from percentage points of yield, mixing units.

Why: After-tax yield on fully taxable income is the pretax yield multiplied by one minus the applicable tax rate. This calculation answers how much of the stated yield the investor keeps after the assumed tax.

Felix Mehta expects a fully taxable yield of 6.40% on a $57,433 investment and assumes a 28% marginal tax rate applies to the income. Ignoring other taxes, what is the after-tax yield?

1. A.4.61%This multiplies the pretax yield by the percentage retained after tax.
2. B.8.89%This is the taxable-equivalent transformation, which answers the opposite comparison.
3. C.6.12%This subtracts a decimal tax rate from percentage points of yield, mixing units.
4. D.8.19%This increases yield for taxes instead of reducing the amount retained.

Why: After-tax yield on fully taxable income is the pretax yield multiplied by one minus the applicable tax rate. This calculation answers how much of the stated yield the investor keeps after the assumed tax.