Question

Assume that Lucas’ marginal tax rate is 30% and his tax rate on dividends is 15%. If a dividend-paying stock (with

no growth potential) pays an 8% dividend yield, what interest rate would a municipal bond have to offer for Lucas to be indifferent between the two investments? A. 30% B. 15% C. 8% D. 6.8% E. None of the above

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