1.Assume that Larry's marginal tax rate is 24 percent. If corporate bonds pay 6.8 percent interest, what interest rate would a municipal bond have to offer for Larry to be indifferent between the two bonds?

Multiple Choice

• 24.00 percent

• 8.03 percent

• 6.80 percent

• 5.17 percent

• None of the choices are correct.

2.Assume that Keisha's marginal tax rate is 37 percent and her tax rate on dividends is 20 percent. If a city of Atlanta bond pays 9.12 percent interest, what dividend yield would a dividend-paying stock (with no growth potential) have to offer for Keisha to be indifferent between the two investments from a cash-flow perspective?

Multiple Choice

• 20.00 percent

• 12.40 percent

• 11.40 percent

• 9.12 percent

• None of the choices are correct.

3. Assume that Will's marginal tax rate is 30 percent and his tax rate on dividends is 15 percent. If a dividend-paying stock (with no growth potential) pays a dividend yield of 6.6 percent, what interest rate must the corporate bond offer for Will to be indifferent between the two investments from a cash-flow perspective?

Multiple Choice

• 10.10 percent

• 9.19 percent

• 8.01 percent

• 5.74 percent

• None of the choices are correct.

4.Assume that Jose is indifferent between investing in a corporate bond that pays 10 percent interest and a stock with no growth potential that pays an 10.3 percent dividend yield. Assume that the tax rate on dividends is 15 percent. What is Jose's marginal tax rate? (Do not round intermediate computations.)

Multiple Choice

• 27.68 percent

• 17.91 percent

• 12.45 percent

• 4.76 percent

• None of the choices are correct.

5.If Tom invests $110,000 in a taxable corporate bond that provides a 5 percent before-tax return, how much will Tom's investment be worth in either 8 or 20 years from now when the bond matures? Assume Tom's marginal tax rate is 35 percent.

Multiple Choice

• $162,520; $291,863.

• $157,361; $273,206.

• $144,200; $216,508.

• $142,074; $208,542.

• None of the choices are correct.