Future Business Leaders of America (FBLA) Securities and Investments Practice Test

What does after-tax yield represent?

1. Total income before taxes

2. Income minus tax expenses

3. Projected future earnings

4. Future value of investments

The correct answer is: Income minus tax expenses

After-tax yield refers to the return on an investment after accounting for taxes owed on the income generated by that investment. It essentially indicates how much profit an investor retains after fulfilling tax obligations. When considering this concept, it is clear that the after-tax yield is calculated by taking the total income generated from an investment and subtracting the taxes due on that income. This provides a true reflection of the actual earnings that the investor will keep, which is critical for evaluating the performance of an investment. Understanding after-tax yield helps investors make informed decisions about where to allocate their funds, as different investments can have varying tax implications. The other options do not accurately represent what after-tax yield signifies. Total income before taxes fails to consider the impact of tax liabilities on actual earnings. Projected future earnings relate to estimates of income yet to be realized and do not reflect current investment outcomes. Finally, future value of investments refers to the worth of an investment at a specified point in the future, which does not specifically address the net income after tax considerations. Therefore, the answer highlighting the importance of understanding earnings post-tax is indeed correct and aligns perfectly with the definition of after-tax yield.