Suppose you are considering buying $5,000 worth of Canada savings bonds (risk-free) and a portfolio of perfectly risk- balanced stocks so that the portfolio is also "risk-free". The stocks portfolio is "risk-free" because it has some stocks that rise in value during a recession (such as McDonald's, chocolate bars, etc.) and some stocks that fall in value during a recession (Samsung, Tesla, etc.) Both choices offer to pay a 5% annual return. However, you also know that 100% of interest income from bonds is taxed as regular income while only 50% of stock income is taxed as regular income. The discount rate you use to evaluate the stocks portfolio should be a. Equal to 5% b. Higher than 5% c. Lower than 5% d. Equal to your income tax rate.

Suppose you are considering buying $5,000 worth of Canada savings bonds (risk-free) and a portfolio of perfectly risk- balanced stocks so that the portfolio is also "risk-free". The stocks portfolio is "risk-free" because it has some stocks that rise in value during a recession (such as McDonald's, chocolate bars, etc.) and some stocks that fall in value during a recession (Samsung, Tesla, etc.) Both choices offer to pay a 5% annual return. However, you also know that 100% of interest income from bonds is taxed as regular income while only 50% of stock income is taxed as regular income. The discount rate you use to evaluate the stocks portfolio should be a. Equal to 5% b. Higher than 5% c. Lower than 5% d. Equal to your income tax rate.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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