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Assume that Keisha's marginal tax rate is 37 percent and her tax rate on dividends is 15 percent. If a city of Atlanta bond pays 7.65 percent interest, what dividend yield would a dividend-paying stock (with no growth potential) have to offer for Keisha to be indifferent between the two investments from a cash-flow perspective

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Tundexi

Answer:

Dividend yield = 9%

Explanation:

Interest = Dividend yield * (1 - tax rate)

7.65% = Dividend yield * (1 - 15%)

7.65% = Dividend yield * (1 - 0.15)

Dividend yield = 7.65% / 0.85

Dividend yield = 0.0765 / 0.85

Dividend yield = 0.09

Dividend yield = 9%

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