Which of the Following Statements Is Correct About a U

question 37

Multiple Choice

Which of the following statements is correct about a U.S.corporation in the 35 % tax bracket that can invest either in a bond paying 8 % interest or in the preferred stock of another corporation that pays a 6 % dividend?

• A)The stock is preferred by approximately .17 %
• B)The stock is preferred by approximately .80 %
• C)The bond is preferred by approximately 1.30 %
• D)The after-tax yields are identical on each After-tax yield (bond) = 8 %(1 - tax rate)
• = 8% (1 - .35)
• = 8% x .65
• = 5)2%
• After-tax yield (stock) = 6% - (6% x taxable portion x tax rate)
• = 6% - (6% x .3 x .35)
• = 5)37%

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Definitions:

U.S. Constitution

The supreme law of the United States, embodying fundamental principles and establishing the national government's structure, functions, and powers.

Administrative Law

A branch of public law that governs the activities of administrative agencies of government, including rulemaking, adjudication, or the enforcement of a specific regulatory agenda.

Case Law

Legal principles developed through decisions in court cases rather than statutes.

Fifth Amendment

An amendment to the U.S. Constitution that provides protections including the right against self-incrimination and double jeopardy.