Assume that Juanita is indifferent between investing in a corporate bond that pays 10.20% interest and a stock with no growth potential that pays a 6% dividend yield. Assume that the tax rate on dividends is 15%. What is Juanita's marginal tax rate?
A) 50%.
B) 40%.
C) 30%.
D) 15%.
E) None of the choices are correct.

Question

Quizplus · Accepted Answer

After-tax yield of dividend-paying stock is 6% × (1 − 0.15) = 5.10%; The after-tax yield of the bond must be 5.10%. Therefore, 5.10% = 10.20% × (1 − mtr) and mtr = 50%

Assume That Juanita Is Indifferent Between Investing in a Corporate