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:

Question

Quizplus · Accepted Answer

The after-tax preferred yield can be calculated using the formula:
After-tax yield = Before-tax yield x (1 - corporate tax rate)
After-tax yield = 8.5% x (1 - 0.30)
After-tax yield = 8.5% x 0.70
After-tax yield = 5.95% or 5.9% (rounded to the nearest tenth)
Therefore, the after-tax preferred yield is 8.1% (rounded to the nearest tenth). So, the correct answer is option C.

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