The shrieves's corporation has $10,000, that it plans to invest in marketable securities. it is choosing among at& t bonds, which yield 7.5%, state of florida muni bonds, which yield 5% (but are not taxable), and at& t preferred stock, with a dividend yield of 6%. shrieves's corporation tax rate is 35%, and 70% of the dividends received are tax exempt. find the after-tax rates of return on all three securities.

4.875%; 5.37%; 5%

Explanation:

Given that,

Invest = $10,000

AT&T bonds = 7.5%

State of Florida muni bonds = 5%

AT&T preferred stock = 6%

Corporate tax rate = 35%

After taxes:

AT&T bonds:

= 7.5% × $10,000

= $750

Taxes:

= 35% × $750

= $262.50

Yield AT&T bonds:

= [($750 - $262.50) ÷ $10,000] × 100

= [$487.50 ÷ $10,000] × 100

= 4.875%

AT&T preferred stock:

= 6% × $10,000

= $600

Tax exemption:

= 70% × $600

= $420

Taxable = $600 - $420

             = $180

Taxes:

= 35% × $180

= $63

Yield AT&T preferred stock:

= [($600 - $63) ÷ $10,000] × 100

= [$537 ÷ $10,000] × 100

= 5.37%

state of Florida muni bonds = 5%

Muni bonds = 5% × $10,000

                    = $500

They are not taxable, so there is no tax deduction.

Yield state of Florida muni bonds:

= [$500 ÷ $10,000] × 100

= [$500 ÷ $10,000] × 100

= 5%

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