Savings account in a commercial bank-expected annual yield = 3%.

High-growth common stocks-expected annual increase in market value = 10%; expected dividend yield = 0.

That looks like an amendment/correction to your previous question, and may explain the unrealistic 10% yield of a savings account that you mentioned.

What exactly is your question?

Calculate the after tax yields on the foregoing investments; assuming the Brittens have a 28% marginal tax rate (based on Public Law 108-27, The Jobs and Growth Tax Relief Reconciliation Act of 2003).

Municipal bonds-expected annual yield = 5%.

High Growth common stocks-expected annual increase in market value = 10%; expected dividend yield = 0.

Thank you!
for helping me with other questions. car

Explain Bot Explain Bot answered
9 months ago

To calculate the after-tax yields on the investments, we need to take into account the marginal tax rate. In this case, the marginal tax rate is 28%. We'll calculate the after-tax yields for both municipal bonds and high-growth common stocks using the given information.

1. Municipal Bonds:
The expected annual yield of municipal bonds is 5%. Since municipal bond interest is generally tax-exempt at the federal level, we do not need to consider the marginal tax rate for this investment. Therefore, the after-tax yield for municipal bonds remains 5%.

2. High Growth Common Stocks:
The expected annual increase in market value for high-growth common stocks is 10%, but the expected dividend yield is 0%. Since the dividend yield is 0%, there are no dividend payments to be taxed. However, the capital gains from the increase in market value will be subject to tax.

To calculate the after-tax yield for high-growth common stocks, we need to consider the tax implications when we sell the stocks and realize the capital gains. The tax rate on long-term capital gains varies depending on the individual's income level. For the purpose of this calculation, let's assume a long-term capital gains tax rate of 20%.

The after-tax yield on high-growth common stocks can be calculated as follows:
After-tax yield = (Expected increase in market value - (Expected increase in market value * Long-term capital gains tax rate)) / Initial investment

Using the given information, the after-tax yield on high-growth common stocks would be:
After-tax yield = (10% - (10% * 0.20)) = 8%

Therefore, the after-tax yield on high-growth common stocks is 8%.

In summary, the after-tax yields for the investments considering a 28% marginal tax rate are as follows:
- Municipal bonds: 5%
- High Growth common stocks: 8%