Answer: 6.375%
Explanation:
The Lancaster State Bank is thinking about purchasing a corporate bond that has a yield of 8.5%. This bank has a marginal tax rate of 25%.
The after-tax yield on this bond would be 6.375%
Answer:
The after tax yield is 6.375%
Explanation:
The after tax yield is the amount of coupon rate after the tax deduction which will be calculated by this formula:
ATY= i(1- tax Rate)
ATY is the after tax yield
i is the coupon interest rate which is 8.5%
tax rate is the marginal tax which will be adjusted on the rate given to give us the after tax yield so we substitute on the above formula:
ATY = 8.5%(1 - 25%) then we compute on calculator
ATY= 6.375% which is the after tax yield of this bond.
thereafter you get the percentage yield which is the yield of a coupon adjusted for tax.
