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Problem 2

Corporate bonds issued by Johnson Corporation currently yield 8.5%. Municipal bonds of equal risk currently yield 4%. At what tax rate would an investor be indifferent between these two bonds? Round your answer to two decimal places.

Problem 3

The Shrieves Corporation has \$10,000 that it plans to invest in marketable securities. It is choosing among AT&T bonds, which yield 8%, state of Florida muni bonds, which yield 4% (but are not taxable), and AT&T preferred stock, with a dividend yield of 6.5%. Shrieves's corporate tax rate is 40%, and 70% of the dividends received are tax exempt. Find the after-tax rates of return on all three securities. Round your answers to two decimal places.

A-T rate of return on AT&T bond

A-T rate of return on Florida muni bonds

A-T rate of return on AT&T preferred stock

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