A 30-year bond with a coupon rate of 4% per year and a yield to maturity of 8% has a subpar value of $549.69. One year later, the yield to maturity remains at 8% and the bond price rises to $553.66 (check the calculations yourself). The bond's yield before taxes will be 8% $40 + (553.66-549.69) = 8% 549.69.

$40 +(553.66-549.69) = 8%

549.69

Suppose the yield to maturity falls to 7% at the end of the first year and the Investor sells the Bond after that first year. He assumed that the tax authority considers ordinary income the interest earned on the bond, as well as the appreciation of the bond's price in one year, without a change in the market rate of return. If the market rate of return changes, changes in the price of the bond are treated as capital gains or losses at the time the bond is sold.

If the interest tax is 38% and the capital gains tax is 20%, determine the after-tax yield of the bond.