Anne's marginal income tax rate of 32 percent. She purchases a corporate bond for 10,000 and the maturity, or face value of the bond is 10000. If the bond pays 5 percent before taxes, what is annie's after tax rate of return from the bond if the bond matures in one year? What is her annual after tax rate of return if the bond matures in 10 years?

The return from the bond is 5% per year before tax. And the tax is 32%.

After tax rate of return = Interest rate * (1-tax rate)

= 5% * (1-32%)

= 0.05 * 0.68

= 0.034

= 3.4%

Thus, the after tax of return from the bond is 3.4%

The interest of the taxable income corporate bond is taxed annually. Hence, the change in the investment maturity period would not affect the after tax rate of return from bond. The annual after tax rate of bond would not change irrespective of the investment maturity period. The after tax rate of return of corporate bonds would be the same 3.4% even in the case of 10 years maturity period.

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