If the Short-Term Commercial Paper Rate Is 6 Percent and the Corporate

question 43

Multiple Choice

If the short-term commercial paper rate is 6 percent and the corporate tax rate is 35 percent, what yield would a corporation require on an investment in auction-rate preferred stock? Assume the default risk is the same as for commercial paper.

• A)6 percent
• B)39 percent
• C)9.2 percent
• D)4.4 percent

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