Final answer:
To calculate the after-tax yield on a savings account for someone in the 25% tax bracket with a before-tax savings rate of return of 12%, multiply the pre-tax rate by (1 - tax rate), resulting in an after-tax yield of 9%.
Step-by-step explanation:
The student is asking how to calculate the after-tax yield on a savings account given a specific pre-tax rate of return and their tax bracket. To determine the after-tax yield, we must consider the effect of taxes on the return.
Given a pre-tax rate of return of 12%, in a 25% tax bracket, the after-tax rate of return can be calculated by subtracting the taxes paid on the interest from the pre-tax rate of return. This calculation is as follows:
After-tax rate of return = Pre-tax rate of return x (1 - Tax bracket)
After-tax rate of return = 0.12 x (1 - 0.25)
After-tax rate of return = 0.12 x 0.75
After-tax rate of return = 0.09 or 9%
Therefore, the after-tax yield on the savings account would be 9%.