Answer:
The return from the bond is 5% per year before tax. And the tax is 32%.
After tax rate of return = Interest rate * (1-tax rate)
= 5% * (1-32%)
= 0.05 * 0.68
= 0.034
= 3.4%
Thus, the after tax of return from the bond is 3.4%
The interest of the taxable income corporate bond is taxed annually. Hence, the change in the investment maturity period would not affect the after tax rate of return from bond. The annual after tax rate of bond would not change irrespective of the investment maturity period. The after tax rate of return of corporate bonds would be the same 3.4% even in the case of 10 years maturity period.
