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:

Lorenz Curve

A graphical representation of the distribution of income or wealth within a society, demonstrating inequality.

Income Distribution

The way in which a nation’s total earnings are spread among its population.

Economic Pie

A metaphorical representation of a country's total economic output or wealth, indicating how it may be divided or shared among different groups or sectors.

Tax and Transfer Programs

Government initiatives designed to redistribute income through taxation and then allocate these funds to various social welfare programs.