Problem:
The Shrieves Corporation has $20,000 that it plans to invest in marketable securities. It is choosing among AT&T bonds, which yield 10%, state of Florida muni bonds, which yield 6% (but are not taxable), and AT&T preferred stock, with a dividend yield of 8.5%. Shrieves's corporate tax rate is 35%, and 70% of the dividends received are tax exempt.
Required:
Question: Find the after-tax rates of return on all three securities.
Note: Provide support for your underlying principle.