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As an investor, you are faced with a marginal federal tax rate of 29% and a provincial tax rate of 11.16%. You have $30,000 available

As an investor, you are faced with a marginal federal tax rate of 29% and a provincial tax rate of 11.16%. You have $30,000 available to invest for 1 year at which time you will cash in your investment and purchase a new car.

Your investment opportunities include:

(a) investing in a one year term deposit offering a guaranteed return of 4% or

(b) investing in the preferred shares of Z Ltd. with a stated dividend of $.20 per share. The shares are currently selling at $16, and are expected to be selling for $16.30 in one year. You anticipate receipt of the dividend prior to selling the shares.

REQUIRED:

Which investment would you prefer? Why? (SHOW ALL CALCULATIONS)

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