18.16 Suppose the Du Pont Company currently has outstanding series 4.50, nonconvertible preferred stock that pays an annual dividend of $4.50. Du Pont has also issued 11-percent bonds that will mature in 10 years. The stock and bonds have about the same risk.

a. The current price of the 4.50 preferred stock is 50 1⁄2. What is its dividend yield?

b. The bonds were sold at par. What is their yield to maturity?

c. As a financial consultant, you want to know the after-tax yields for each of these investments. The corporate tax rate is 34 percent and the personal tax rate is 28 percent. Compute the after-tax yields on Du Pont’s preferred stock and its bonds for each of the following groups:
i. General Motors’s tax-exempt pension.
ii. General Motors Corporation.

d. Which group do you believe owns the most Du Pont stock?