As investment manager of Pasco Electric Companys pension plan (which is exempt from income taxes), you must

Question:

As investment manager of Pasco Electric Company’s pension plan (which is exempt from income taxes), you must choose between IBM bonds and AT&T preferred stock. The bonds have a $1,000 par value, mature in 20 years, pay $40 every six months, and sell at a price of $897.40 per bond. The preferred stock is a perpetuity; it pays a of $2 each quarter, and it sells for $95 per share. What is the effective annual rate of return (rEAR) on the higher-yielding security?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...