The yield on a taxable bond issue after income taxes are paid. It is computed as follows:
after-tax yield = pre-tax yield x (1- marginal tax rate)
The marginal tax rate is the tax rate at which an additional unit of money is taxed. This rate varies from an investor to another. For example, if a taxable bond issue offers a yield of 4.8% and is purchased by an investor whose marginal tax rate is 34%, then the after-tax yield would be:
after-tax yield = 0.048 x (1-0.34) = 3.168%
This represents the net yield that would be received by an investor holding a taxable bond.
