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.

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Definitions:

Contract

A legally enforceable agreement between two or more parties that creates mutual obligations enforceable by law.

Rights

Entitlements or permissions granted to individuals or groups by legal systems, societal norms, or moral principles, often protected by law.

Vest

To mature, as in the maturation of rights that allow a party to act legally on the rights.

Perfect

To complete all required legal steps to finalize a lien, security interest, or title claim on property, ensuring it is enforceable against third parties.