Solarcell Corporation has $20,000 that it plans to invest in marketable securities.
It is choosing between AT&T bonds that yield 11%, State of Florida municipal bonds that yield 8%, and AT&T preferred stock with a dividend yield of 9%.
Solarcell's corporate tax rate is 29.00%, and 70% of the preferred stock dividends it receives are tax exempt.
Assuming that the investments are equally risky and that Solarcell chooses strictly on the basis of after-tax returns, which security should be selected?
Answer by giving the after-tax rate of return on the highest yielding security.