1. An investor is in the 28% federal tax bracket, pays 6% in state taxes and 2% in local income taxes. For this investor a municipal bond paying 4.5% interest is equivalent to a corporate bond paying _____ interest.
a. 7.03% b. 9.68% c. 8.47% d. 7.58%
2. Banya, Inc., has just paid a cash dividend of $2 per share. Investors require a 16% return from investments such as this. If the dividend is expected to grow at a steady 8% per year, what is the current value of the stock?
a. $39.48 b. $32.69 c. $25 d. $27