Stock A has a dividend yield of 8% but no capital gain.Stock B offers a capital gain but no dividend.If a corporate investor in the 35% tax bracket earns the same after-tax return from the two stocks,what capital gain does B offer?
A) 8.00%
B) 9.29%
C) 11.02%
D) 12.31%

Question

Quizplus · Accepted Answer

R_A = 0.08 − (0.08 × 0.30 × 0.35) = 0.0716, or 7.16%R_B= 0.0716 / (1 − 0.35) = 0.1102, or 11.02%

Stock a Has a Dividend Yield of 8% but No