DEFINITION of '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.
BREAKING DOWN 'Pretax Rate Of Return'
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 aftertax 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 aftertax rate of return of 4.25%. However, suppose that a municipal bond that is taxexempt and has a pretax return of 4.25% and would therefore also have the same aftertax 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 aftertax return is the same as that of the more volatile stock, despite the latter having a higher pretax rate of return.

AfterTax Return
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Professionals
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Professionals
Introduction
FINRA/NASAA Series 66: Section 2 Measuring Portfolio Returns. This section discusses different return measures: return on investment, holding period, annualized, risk free and total returns. 
Term
What's a Real Rate of Return?
A real rate of return is an annual percentage investment return thatâ€™s adjusted for inflation, taxes or other factors. 
Professionals
Rates of Return
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Fundamental Analysis
Explaining Expected Return
The expected return is a tool used to determine whether or not an investment has a positive or negative average net outcome. 
Bonds & Fixed Income
Calculating the TaxEquivalent Yield
Taxequivalent yield is the pretax yield a taxable bond must possess for its yield to equal that of a taxfree municipal bond. 
Taxes
Capital Gains Tax 101
Find out how taxes are applied to your investment returns and how you can reduce your tax burden. 
Term
What's a Return of Capital?
A return of capital is an investment return that is not considered income. 
Professionals
Other Terms
FINRA/NASAA Series 66: Section 2 Other Terms. This section discusses measures of portfolio return: risk premium, expected return and benchmark portfolios. 
Markets
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