Chapter 30, Problem 37PS

After-tax yields Suppose you are a wealthy individual paying 37% tax on interest income, 20% on dividends, and zero tax on municipal notes. What is the expected after-tax yield on each of the following investments?

1. a. A municipal note yielding 6.5% pretax.
2. b. A Treasury bill yielding 8% pretax.
3. c. A floating-rate preferred stock yielding 7.5% pretax.

How would your answer change if the investor is a corporation paying tax at 21%? What other factors would you need to take into account when deciding where to invest the corporation’s spare cash?