9. Taxes and Treasury Bills (LO1) As a practical matter, most of the return you earn from investing in Treasury bills is taxed right away as ordinary income. Thus, if you are in a 40 percent tax bracket and you earn 5 percent on a Treasury bill, your aftertax return is only .05 × (1 − .40) =

.03, or 3 percent. In other words, 40 percent of your return goes to pay taxes, leaving you with just 3 percent. Once you consider inflation and taxes, how does the long-term return from Treasury bills look?