Which One of the Following Statements Is Correct About a Corporation

question 11

Multiple Choice

Which one of the following statements is correct about a 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? Ignore any differences in risk.

• A) The preferred stock should be selected because its after-tax yield is 0.17% higher.
• B) The preferred stock should be selected because its after-tax yield is 0.80% higher.
• C) The bond should be selected because its after-tax yield is 0.17% lower.
• D) The bond should be selected because its after-tax yield is 1.3% higher.

---

Definitions:

Necessary

A condition or requirement that is indispensable or essential for something to occur or be the case.

Rationalists

Philosophers or thinkers who emphasize reason, logic, and intellect over sensory experience or empirical evidence as the primary sources of knowledge.

Coherence

The property of being a unified whole, with all elements fitting together well.

Rationality

The quality of being based on or in accordance with reason or logic; typically applied in the context of human decision-making processes that are logical, sensible, and based on clear thinking or reason.