The Omega Corporation has some excess cash it would like to invest in marketable securities for a long-term hold. Its Vice-President of Finance is considering three investments: (a) Treasury bonds at a 6 percent yield; (b) corporate bonds at a 9 percent yield; or (c) preferred stock at an 7 percent yield. Omega Corporation is in a 30 percent tax bracket and the tax rate on dividends is 15 percent. a-1. Compute the aftertax yields for the three investment options Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Aftertax yields a. Treasury bonds b. Corporate bonds c. Preferred stock % a-2. Which one of the three investments should she select based on the aftertax yields? O Preferred stock Treasury bonds Corporate bond
The Omega Corporation has some excess cash it would like to invest in marketable securities for a long-term hold. Its Vice-President of Finance is considering three investments: (a) Treasury bonds at a 6 percent yield; (b) corporate bonds at a 9 percent yield; or (c) preferred stock at an 7 percent yield. Omega Corporation is in a 30 percent tax bracket and the tax rate on dividends is 15 percent. a-1. Compute the aftertax yields for the three investment options Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Aftertax yields a. Treasury bonds b. Corporate bonds c. Preferred stock % a-2. Which one of the three investments should she select based on the aftertax yields? O Preferred stock Treasury bonds Corporate bond
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:The Omega Corporation has some excess cash it would like to invest in marketable securities for a
long-term hold. Its Vice-President of Finance is considering three investments: (a) Treasury bonds at a
6 percent yield; (b) corporate bonds at a 9 percent yield; or (c) preferred stock at an 7 percent yield.
Omega Corporation is in a 30 percent tax bracket and the tax rate on dividends is 15 percent.
a-1. Compute the aftertax yields for the three investment options.
Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2
decimal places.
a. Treasury bonds,
b. Corporate bonds
c. Preferred stock
Aftertax yields
%
%
56
a-2. Which one of the three investments should she select based on the aftertax yields?
O Preferred stock
Treasury bonds
Corporate bond
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