5.

value: 0.60 points

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 12 percent yield; or (c) preferred stock at an 8 percent yield. Omega Corporation is in a 40 percent tax bracket and the tax rate on dividends is 10 percent.

a-1.	Compute the aftertax yields for the three investment options. (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?

	Preferred stock
	Treasury bonds
	Corporate bond