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Jason and Kerri Consalvo, both in their 50 's, have $45,000 to invest and plan to retire in 10 years. They are considering two investments.

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Jason and Kerri Consalvo, both in their 50 's, have $45,000 to invest and plan to retire in 10 years. They are considering two investments. The first is a utility company common stock that costs $45 per share and pays dividends of $1.35 per share per year (a 3\% dividend yield). Note that these dividends will be taxed at the same rates that apply to long-term capital gains. The Consalvos do not expect the value of this stock to increase. The other investment under consideration is a highly rated corporate bond that currently sells for $1,000 and pays annual interest at a rate of 4.0%, or $40.00 per $1,000 invested. After 10 years, these bonds will be repaid at par, or $1,000 per $1,000 invested. Assume that the Consalvos keep the income from their investments but do not reinvest it (they keep the cash in a non-interest-bearing bank account). They will, however, need to pay income taxes on their investment income. If they buy the stock, they will sell it after 10 years. If they buy the bonds, in 10 years they will get back the amount they invested. The Consalvos are in the 35% tax bracket. (Note: The tax rate on dividends for the Consalvos will be 15% and your calculations should ignore the 3.8% tax on investment income that was part of the Affordable Care Act.) a. How many shares of the stock can the Consalvos buy? b. How much will they receive after taxes each year in dividend income if they buy the stock

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