A corporation in a 34% tax bracket invests in the preferred stock of another company and earns a 6% pretax rate of return. An individual investor in a 15% tax bracket invests in the same preferred stock and earns the same pretax return. The after-tax return to the corporation is ________, and the after-tax return to the individual investor is ________.
A) 3.96%; 5.1%
B) 5.39%; 5.1%
C) 6%; 6%
D) 3.96%; 6%

Question

Quizplus · Accepted Answer

After-tax return to corporate investor after 70% exclusion = .06 - (.06 × .30) × .34 = 5.39%
After-tax return to individual investor = .06(1 - .15) = 5.1%

A Corporation in a 34% Tax Bracket Invests in the Preferred