How to set up the problem.
Calculate the after-tax yields on the foregoing investments, assuming the Brittens have a 28% marginal tax rate. And they are going to purchase a condominium for $100,000 with an expected annual increase in market value = to 2%
To calculate the after-tax yields on the investments, we need to follow these steps:
1. Determine the before-tax yield of each investment:
- For the first investment, subtract the initial cost of $100,000 from the expected annual increase in market value of 2%. This gives us an annual yield of $2,000.
- For the second investment, divide the annual interest of $4,500 by the initial cost of $90,000. This gives us a yield of 5%.
2. Calculate the amount of tax paid on the yields:
- Multiply the before-tax yield of each investment by the 28% marginal tax rate. This will give us the amount of tax paid on the yields.
3. Subtract the tax paid on the yields from the before-tax yield to find the after-tax yield:
- Subtract the tax paid from the before-tax yield for each investment to obtain the after-tax yield.
To summarize, you would need to calculate the before-tax yield of each investment, then calculate the amount of tax paid on each yield using the marginal tax rate. Finally, subtract the tax paid from the before-tax yield to find the after-tax yield.