Assume that Juanita is indifferent between investing in a corporate bond that pays 11.20 percent interest...

Assume that Juanita is indifferent between investing in a corporate bond that pays 11.20 percent interest and a stock with no growth potential that pays a 7.70 percent dividend yield. Assume that the tax rate on dividends is 15 percent. What is Juanita's marginal tax rate?

Expert Solution

Let t be marginal tax rate,

So,

0.1120(1 - t) = 0.077(1 - 0.15)

t = 41.56%

Tax Rate = 41.56%

jeff jeffy answered 2 years ago

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