A corporate investor of preferred stock receiving a before-tax preferred yield of 8.5%, and having a corporate tax rate of 30%, would receive an after-tax preferred yield of approximately _____. Assume the tax rate on dividends is 15%.

Question

Quizplus · Accepted Answer

The after-tax preferred yield can be calculated as follows:
After-tax preferred yield = Before-tax preferred yield x (1 - corporate tax rate) x (1 - dividend tax rate)
= 8.5% x (1 - 0.30) x (1 - 0.15)
= 5.95%
Therefore, the answer is 8.1% (rounded to one decimal place).

A Corporate Investor of Preferred Stock Receiving a Before-Tax Preferred