Laura has an average tax rate of 21 percent and a marginal tax rate of 28 percent. What is her after-tax yield on a corporate bond which has a 7.6 percent yield?

Question

Quizplus · Accepted Answer

To calculate the after-tax yield, we need to first determine how much Laura will actually earn after taxes on the bond.

Laura's marginal tax rate of 28 percent means that for every additional dollar she earns, 28 cents goes towards taxes. However, her average tax rate of 21 percent means that on average, she pays 21 cents in taxes for every dollar she earns.

To calculate Laura's after-tax yield on the bond, we can use the following formula:

After-tax yield = Yield x (1 - Marginal tax rate)

= 7.6% x (1 - 0.28)

= 7.6% x 0.72

= 5.472%

Therefore, Laura's after-tax yield on the corporate bond is 5.472%, or approximately 5.47%. The correct answer is C.

Laura Has an Average Tax Rate of 21 Percent and a Marginal