Suppose you are a wealthy individual paying 39.1 percent tax on income. What is the expected…
Suppose you are a wealthy individual paying 39.1 percent tax on income. What is the expected after-tax yield on each of the following investments?
a. A municipal note yielding 6.5 percent pretax.
b. A Treasury bill yielding 10 percent pretax.
c. A floating-rate preferred stock yielding 7.5 percent pretax.
How would your answer change if the investor is a corporation paying tax at 35
percent? What other factors would you need to take into account when deciding where to invest the corporation"s spare cash?
