The Stumbaugh State Bank is thinking about purchasing a corporate bond that pays a coupon of 9%.The bank has a marginal tax rate of 40%.What is the after-tax yield on this bond?
A)15%
B)9%
C)5.4%
D)3.6%
E)None of the options is correct

Question

Quizplus · Accepted Answer

The after-tax yield can be calculated as follows:
After-tax yield = coupon rate x (1 - marginal tax rate)
After-tax yield = 9% x (1 - 0.40)
After-tax yield = 5.4%  Therefore, the answer is C) 5.4%.

The Stumbaugh State Bank Is Thinking About Purchasing a Corporate