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:

Executives

Senior-level managers in an organization responsible for strategic decision-making and overall business operations.

Wickard V. Filburn

A landmark 1942 U.S. Supreme Court case that vastly expanded the power of the federal government to regulate economic activities, based on the Commerce Clause.

Interstate Commerce

Economic activities or transactions that cross state borders or affect more than one state, which are regulated by the federal government in the United States.

Single-Family Farm

A farm operated and maintained by a single family, usually for the purposes of sustenance or income.