The formula to calculate the After-Tax Yield (ATY) is:
\[ ATY = Yield \times (1 - Tax\ Rate) \]
Where:
After-tax yield is a measure of return on an investment after all applicable taxes have been deducted. It is often used to compare the profitability of investments that have different tax implications. For example, municipal bonds are often tax-free, while corporate bonds are not. By calculating the after-tax yield, an investor can make a more accurate comparison of the potential returns from different types of investments.
Let's assume the following values:
Using the formula to calculate the After-Tax Yield (ATY):
\[ ATY = Yield \times (1 - Tax\ Rate) = 6 \times (1 - 0.25) = 6 \times 0.75 = 4.5\% \]
The After-Tax Yield (ATY) is 4.5%.
