Question

Brent, a single taxpayer, has a 24% marginal tax rate. He is considering an investment that will earn qualified dividends at a rate of 7% before tax. What is Brent's after-tax rate of return on the securities?

A) 1.75%
B) 5.95%
C) 5.25%
D) 1.05%

Answer 1

Brent's after-tax rate of return on the securities is 5.32%.

Step-by-step explanation:

To calculate Brent's after-tax rate of return on the securities, we need to consider his marginal tax rate and the rate of return on the investment before tax. Brent's marginal tax rate is 24%, which means that he will pay 24% of his investment earnings in taxes. The investment will earn qualified dividends at a rate of 7% before tax. To calculate Brent's after-tax rate of return, we can subtract his marginal tax rate from 100% (100% - 24% = 76%), and then multiply this by the rate of return on the investment (76% * 7% = 5.32%). Therefore, Brent's after-tax rate of return on the securities is 5.32%.