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9 October, 13:24

Assume that Lucas' marginal tax rate is 10% and his tax rate on dividends is 5%. If a dividend-paying stock (with no growth potential) pays an 6.40% dividend yield, what interest rate would a municipal bond have to offer for Lucas to be indifferent between the two investments from a cash-flow perspective?

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  1. 9 October, 17:18
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    Answer:6.08%

    Explanation:

    Assuming that Lucas' marginal tax rate is 10% and his tax rate on dividends is 5%. If a dividend-paying stock (with no growth potential) pays an 6.40 dividend yield. The interest rate that a municipal bond have to offer for Lucas

    Is

    6.4% * (1 -.05) = 0,0608

    Therefore 6.08%
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