Maurice Is Currently Considering Investing in a High Dividend Yield

question 73

Essay

Maurice is currently considering investing in a high dividend yield stock with no growth potential that pays a 6% dividend yield or bonds issued by The Coca Cola Company that pay 8%.If Maurice's ordinary tax rate is 25% and his dividend tax rate is 15%,which investment should he choose? Which investment should he choose if his ordinary tax rate is 30%? At what ordinary tax rate would he be indifferent to the stock or to the bond? What strategy is this decision based upon?

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Definitions:

Projection

A defense mechanism where an individual attributes their own undesired feelings, thoughts, or impulses onto someone else.

Perception

The process by which individuals organize and interpret their sensory impressions to give meaning to their environment.

Self-Efficacy

An individual’s belief in their own capability to execute behaviors necessary to produce specific performance attainments.

Attribution Theory

A theory focused on how people interpret and understand their own behavior and the behavior of others by attributing causes to actions.