XYZ can issue a 25-year, bonds with an annual rate of 10%.. Its investment bankers also also stated that the company can sell an issue of annual payment preferred stock to corporate investors who are in the 40% tax bracket. The corporate investors require an after-tax return on the preferred that exceeds their after-tax return on the bonds by 2.0%, which would represent an after-tax risk premium. What coupon rate must be set on the preferred in order to issue it at par? Ans: 9.09% ( hint Pref stock is 70% deductible from taxes the after tax cost of pref bonds has a premium of 2% higher than the after tax cost of bonds which is 6%)