How to Calculate Before-Tax Yield of Interest for Treasury Bills
What is the formula to calculate the before-tax yield of interest for Treasury Bills?
A) After-tax yield / (1 - Marginal tax rate)
B) After-tax yield / (1 + Marginal tax rate)
C) After-tax yield * (1 - Marginal tax rate)
D) After-tax yield * (1 + Marginal tax rate)
E) After-tax yield / Marginal tax rate
Final Answer:
The before-tax yield of interest rounded to the nearest two digits would be 4.47%.
Explanation:
To calculate the before-tax yield of interest, we can use the formula:
Before-tax yield = After-tax yield / (1 - Marginal tax rate)
In this case, the given after-tax yield is 3.53% and the investor's marginal tax rate is 21.0%.
Let's substitute these values into the formula:
Before-tax yield = 3.53% / (1 - 0.21)
Simplifying the expression:
Before-tax yield = 3.53% / 0.79
Dividing 3.53% by 0.79:
Before-tax yield ≈ 4.47%
Rounding the before-tax yield to the nearest two digits, we get approximately 4.47%.