How to Calculate Before-Tax Yield of Interest for Treasury Bills

What is the formula to calculate the before-tax yield of interest for Treasury Bills?

A) After-tax yield / (1 - Marginal tax rate)

B) After-tax yield / (1 + Marginal tax rate)

C) After-tax yield * (1 - Marginal tax rate)

D) After-tax yield * (1 + Marginal tax rate)

E) After-tax yield / Marginal tax rate

Final Answer:

The before-tax yield of interest rounded to the nearest two digits would be 4.47%.

Explanation:

To calculate the before-tax yield of interest, we can use the formula:

Before-tax yield = After-tax yield / (1 - Marginal tax rate)

In this case, the given after-tax yield is 3.53% and the investor's marginal tax rate is 21.0%.

Let's substitute these values into the formula:

Before-tax yield = 3.53% / (1 - 0.21)

Simplifying the expression:
Before-tax yield = 3.53% / 0.79

Dividing 3.53% by 0.79:
Before-tax yield ≈ 4.47%

Rounding the before-tax yield to the nearest two digits, we get approximately 4.47%.