An investor purchases one corporate bond that pay rates of return of 6.40%. If the investor is in the 15% tax bracket, his after tax rates of return on the corporate bond would be
A)6.40%
B)5.44%
C)7.36%
D)6.25%

Question

Quizplus · Accepted Answer

The after-tax rate of return can be calculated as:
After-tax rate of return = pre-tax rate of return x (1 - tax rate)
After-tax rate of return = 6.40% x (1 - 0.15) = 5.44%
Therefore, the correct option is B.

An Investor Purchases One Corporate Bond That Pay Rates of Return