Which of the Following Statements Is Correct About a U

Which of the following statements is correct about a U.S.corporation in the 35 % tax bracket that can invest either in a bond paying 8 % interest or in the preferred stock of another corporation that pays a 6 % dividend?

A) The stock is preferred by approximately .17 %
B) The stock is preferred by approximately .80 %
C) The bond is preferred by approximately 1.30 %
D) The after-tax yields are identical on each After-tax yield (bond) = 8 %(1 - tax rate)
= 8% (1 - .35)
= 8% x .65
= 5) 2%
After-tax yield (stock) = 6% - (6% x taxable portion x tax rate)
= 6% - (6% x .3 x .35)
= 5) 37%