The Lancaster State Bank is thinking about purchasing a corporate bond that pays a coupon of 8.5%.The bank has a marginal tax rate of 25%.What is the after-tax yield on this bond?
A)11.33%
B)8.5%
C)6.375%
D)2.125%
E)None of the options is correct

Question

Quizplus · Accepted Answer

The after-tax yield on the bond can be calculated as follows:

After-tax yield = Coupon rate x (1 - Marginal tax rate) 
= 8.5% x (1 - 0.25) 
= 6.375%

Therefore, the answer is choice C.

The Lancaster State Bank Is Thinking About Purchasing a Corporate