A Taxable Money Market Fund Has an Annual Return of 4.62

question 5

Multiple Choice

A taxable money market fund has an annual return of 4.62 percent.What is the equivalent aftertax yield if the tax rate is 27 percent?

• A) 1.25 percent
• B) 3.37 percent
• C) 4.62 percent
• D) 5.87 percent
• E) 6.13 percent

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Definitions:

M&M Proposition II

A theory proposing that the cost of equity for a leveraged firm increases linearly with its level of debt, holding the cost of debt constant.

Cost of Equity

The return a company requires to decide if an investment meets capital return requirements and is used in calculating the weighted average cost of capital.

Debt/Equity Ratio

A financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets, often used to gauge financial health and risk.

Required Rate of Return

The lowest yearly percentage gain from an investment required to attract individuals or businesses to invest in a specific security or venture.