Pretax Rate Of Return

The rate of return on an investment that does not take the taxes the investor must pay on this return. Because individuals' tax situations differ and different investments attract varying levels of taxation, the pretax rate of return is the measure most commonly cited for investments in the financial world.

Since dividends on stocks may be taxed at a different level from interest income or capital gains, for example, the pretax rate of return enables comparisons to be made across different asset classes. However, it is the after-tax rate return that is most important to investors.

For example, assuming a capital gains tax rate of 15%, a stock that provides a 5% pretax rate of return would have an after-tax rate of return of 4.25%. However, suppose that a municipal bond that is tax-exempt and has a pretax return of 4.25% and would therefore also have the same after-tax rate of return. In this case, an investor may choose the municipal bond because of its greater degree of safety and the fact that its after-tax return is the same as that of the more volatile stock, despite the latter having a higher pretax rate of return.


Investment dictionary. . 2012.

Look at other dictionaries:

  • pretax rate of return — Gain on a security before taxes. Bloomberg Financial Dictionary …   Financial and business terms

  • Social discount rate — is a measure used to help guide choices about the value of diverting funds to social projects. It is defined as “the appropriate value of r to use in computing present discount value for social investments” [Gruber, Jonathan (2007). Chapter 8:… …   Wikipedia

  • Poverty in China — refers to people whose income is less than a poverty line of $1 per day (PPP) set by the World Bank benchmark (see Measuring poverty). Poverty has affected all aspects of the nation’s life, including the environment, health, education, housing,… …   Wikipedia

  • Economic Affairs — ▪ 2006 Introduction In 2005 rising U.S. deficits, tight monetary policies, and higher oil prices triggered by hurricane damage in the Gulf of Mexico were moderating influences on the world economy and on U.S. stock markets, but some other… …   Universalium

  • ECONOMIC AFFAIRS — THE PRE MANDATE (LATE OTTOMAN) PERIOD Geography and Borders In September 1923 a new political entity was formally recognized by the international community. Palestine, or Ereẓ Israel as Jews have continued to refer to it for 2,000 years,… …   Encyclopedia of Judaism

  • Business valuation — is a process and a set of procedures used to estimate the economic value of an owner’s interest in a business. Valuation is used by financial market participants to determine the price they are willing to pay or receive to consummate a sale of a… …   Wikipedia

  • DuPont analysis — (also known as the DuPont identity, DuPont equation, DuPont Model or the DuPont method) is an expression which breaks ROE (Return On Equity) into three parts. The name comes from the DuPont Corporation that started using this formula in the 1920s …   Wikipedia

  • Convertible bond — Financial markets Public market Exchange Securities Bond market Fixed income Corporate bond Government bond Municipal bond …   Wikipedia

  • Monthly Income Preferred Securities - MIPS — Shares that are an interest in a limited partnership existing solely for the purpose of issuing preferred securities and lending the proceeds of the sales to its parent company. MIPS usually have a $25 par value, NYSE listing and cumulative… …   Investment dictionary

  • Quarterly Income Preferred Securities - QUIPS — Shares that are an interest in a limited partnership that exists solely for the purpose of issuing preferred securities and lending the proceeds of the sales to its parent company. They usually have a $25 par value, NYSE listing and cumulative… …   Investment dictionary

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.