Assume that Lucas' marginal tax rate is 30% and his tax rate on dividends is 15%. If a dividend-paying stock (with no growth potential) pays an 8% dividend yield, what interest rate would a municipal bond have to offer for Lucas to be indifferent between the two investments from a cash-flow perspective?
A) 30.00%.
B) 15.00%.
C) 8.00%.
D) 6.80%.
E) None of the choices are correct.
Correct Answer:
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