Question

Franklin Corporation has an opportunity to purchase bonds at a rate of 11%. They are in the 34% tax bracket. What is the after tax yield on these bonds?

Answer 1

Answer: 7.26%

Explanation:

Given that,

Opportunity to purchase bonds at a rate(Pretax Yield on Bond) = 11%

Tax bracket = 34%

After-tax Yield on Bonds = Pre-tax Yield on Bonds × (1 - Tax Rate)

After-tax Yield on Bonds = 11% × (1 - 0.34)

After-tax Yield on Bonds = 11% × 0.66

After-tax Yield on Bonds = 0.0726

After-tax Yield on Bonds = 7.26%