Assume that Keisha’s marginal tax rate is 40% and her tax rate on dividends is 10% If a city of Atlanta bond pays

Question

Assume that Keisha’s marginal tax rate is 40% and her tax rate on dividends is 10%. If a city of Atlanta bond pays

7.02% interest, what dividend yield would a dividend-paying stock (with no growth potential) have to offer for Keisha to be indifferent between the two investments from a cash-flow perspective?

Multiple Choice

  • 10.00%
  • 8.80%
  • 7.80%
  • 7.02%
  • None of the choices are correct.

Business