An individual investing in preferred stock receiving a before-tax preferred yield of 6.75% and having a tax rate of 25% would receive an after-tax preferred yield of ________. Assume the tax rate on dividends is 15%.
A) 6.75%
B) 5.1%
C) 5.7%
D) 6.1%

Question

Quizplus · Accepted Answer

After-tax preferred yield = Before-tax preferred stock yield × (1 − Tax rate) = 0.0675 × (1 − 0.15) = 5.7%

An Individual Investing in Preferred Stock Receiving a Before-Tax Preferred