Question
1) Assume that Lavonia's marginal tax rate is 22 percent. If a city of Tampa bond pays 8 percent interest, what interest rate would a
1) Assume that Lavonia's marginal tax rate is 22 percent. If a city of Tampa bond pays 8 percent interest, what interest rate would a corporate bond have to offer for Lavonia to be indifferent between the two bonds?
2) Assume that Shavonne's marginal tax rate is 37 percent and her tax rate on dividends is 15 percent. If a corporate bond pays 7.8 percent interest, what dividend yield would a dividend-paying stock (with no growth potential) have to offer for Shavonne to be indifferent between the two investments from a cash-flow perspective?
3) Assume that Juanita is indifferent between investing in a corporate bond that pays 8.60 percent interest and a stock with no growth potential that pays a 6.40 percent dividend yield. Assume that the tax rate on dividends is 15 percent. What is Juanita's marginal tax rate? (Do not round intermediate computations.)
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