aftertax yield

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Aftertax Yield

An investment's rate of return after subtracting all applicable taxes, expressed as a percentage. Most analysts prefer to look at afterax yield instead of pretax yield when weighting investment decisions. Mutual funds are required to disclose their aftertax yields to provide the most accurate picture possible. See also: Current yield.

aftertax yield

The rate of return on an investment after taxes have been calculated and subtracted. Aftertax yield, as opposed to pretax yield, is generally a preferred basis for comparing investment alternatives.
Case Study Utilizing aftertax rather than pretax yield to evaluate investments is a universal rule that applies to stocks, bonds, real estate, and mutual funds. In 2001 the Securities and Exchange Commission adopted a rule requiring that mutual funds disclose in their prospectuses aftertax returns based on stipulated formulas. The SEC order also required certain funds to include standardized aftertax yields in advertisements and other sales materials. The order was prompted by the belief that many investors lack a clear understanding of the impact of taxes on their mutual fund investments. Mutual funds regularly tooted their horns regarding their pretax returns, but SEC studies indicated substantial differences existed in the extent to which these returns were taxed. The tax consequences of distributions are especially puzzling to many mutual fund shareholders who are taxed on distributions based on realized gains from which they frequently did not benefit. To provide investors with more accurate information, the SEC requires that mutual funds present aftertax returns in two ways: on fund distributions only, which would apply to investors who continued to hold their mutual fund shares, and on fund distributions and a redemption of fund shares, which would apply to investors who liquidated their mutual fund shares. In each case aftertax returns are presented as if the shareholder is in the highest applicable federal income tax rate. Pretax and aftertax returns are presented using a standard format.
References in periodicals archive ?
Following Van Horne's [2001] development, we can solve for the nominal, after-tax yield for TIPS by equating today's TIPS price, [P.sub.TIPS], with the present value of all nominal after-tax cash flows:
(4.) The yield differential between taxable Treasury bills and tax-exempt municipal bonds is often summarized by the implicit tax rate that equates the after-tax yield from a taxable and a tax-exempt security.
Case 1 (the income effect) is the case where a lower (higher) future after-tax yield makes the future consumption lower (higher) and hence the marginal utility derived from it becomes higher (lower).
Subtract the answer from 1, and the result equals the lowest marginal tax rate for which that muni has a better after-tax yield than the Treasury." Table 1(6) Compound Annual Rates of Return Between 1969 and 1994 Pre-Tax Return After-Tax Return(7) 20-year municipals 5.99% 5.97% 5-year municipals 5.31% 5.30% 5-year treasuries 7.71% 3.32% 30-day treasuries 6.99% 3.07% 20-year treasuries 7.58% 2.99%
This condition holds when the rate of return on tax-exempt bonds [r.sub.e] is sufficiently small (but greater than the after-tax yield from taxable bonds) (for proof see the Appendix).
assuming a 31% investor tax rate and a discount rate equal to the average after-tax yield to an individual investor at which Republic of Austria bonds maturing in approximately 5.5 years were trading.
Right now, intermediate-quality corporates yield about 11.5 percent--for someone in the 31 percent tax bracket, that is equivalent to an after-tax yield of 7.9 percent.
He said the bonds would be priced immediately before they were sold, at a margin over the after-tax yield on six-month treasury bills.
It is useful to convert a taxable yield to an after-tax yield, and to convert a tax exempt yield to a taxable equivalent yield (or tax exempt equivalent).
Panel A shows that the after-tax yield to maturity equals 7.20% if the investor chooses not to sell at the end of the first year.
This preferential tax treatment increases the after-tax yield to bond purchasers over comparable taxable investments and reduces the borrowing costs to state and local governments.
The effective tax rate for the investment income on an asset is, by definition, one minus the ratio of the after-tax yield on the asset to the yield on a fully taxable asset of comparable risk and maturity.