Assume That Lucas's Marginal Tax Rate Is 12 Percent and His

question 37

Multiple Choice

Assume that Lucas's marginal tax rate is 12 percent and his tax rate on dividends is 6 percent. If a dividend-paying stock (with no growth potential) pays an 8 percent dividend yield, what interest rate would a municipal bond have to offer for Lucas to be indifferent between the two investments from a cash-flow perspective?

• A)12.00 percent
• B)5)00 percent
• C)8)00 percent
• D)7)52 percent
• E)None of the choices are correct.

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Definitions:

Ceramic Rod

A rod made of ceramic material, often used in applications requiring high temperature resistance or electrical insulation.

Composition Carbon

Likely refers to carbon composition resistors, electronic components made from carbon dust or graphite paste, used for their stable electrical resistance.

Variable Resistor

An electronic component that can adjust the flow of electrical current through it by changing its resistance.

Potentiometer

A variable resistor with a sliding contact that is used as a voltage divider.