A corporation in a 34% tax bracket invests in the preferred stock of another company and earns a 6% pretax rate of return. An individual investor in a 15% tax bracket invests in the same preferred stock and earns the same pretax return. The after-tax return to the corporation is , and the after-tax return to the individual investor is .

5.38% and 5.1%

Explanation:

In this question, we are asked to calculate the after tax return to the corporation and the after tax return to the investor.

What is meant by after tax return is simply the profit made after we subtract the amount of taxes. It is simply revenue less the amount of tax paid.

We calculate the values as follows:

For the corporation;

The after tax return can be calculated by the following mathematical expression;

After tax return to Corporation = 0.06 - (0.06 * 0.3) * 0.34 = 0.0538 = 5.38/100 which is same as 5.38%.

After tax return to the individual investor = 0.06(1-0.15) = 0.06 * 0.85 = 0.051 or just 5.1%