Save Jason and Kerri Consalvo, both in their 50's, have $50,000 to invest and plan to retire in 10 years. They are considering two investments The fest is a utility company common stock that costs $50 per share and pays dividends of $2.00 per share per year (a dividend yield). Note that these dividends will be taxed at the me rates that apply to long-term capital gains. The Consalves 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 50%, or $50.00 per $1,000 invested, Aner 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 reinvestit (they keep the cash in a non-interest-bearing bank account) They wilt, 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 inted. The Consalvos are in the 35% tax bracket (Note: The tax rate on dividends for the Consalves 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? c. What is the total amount they would have from their original $50,000 if they purchased the stock and all went as planned? E under consideration is a highly rated corporate bond that currently sells for $1.000 and pays annual interest at a rade of 50%, or $50.00 per $1,000 invested After 10 years, these bonds will be repaid at par, or $1.000 per $1,000 invested: Assume that the Consalves keep the income from their investments but do not reinvest it (they keep the cash in a non-interest-bearing bank account they wil however, need to pay ome tances on their investment income. If they buy the stock, they will sell it atler 10 years. If they buy the bonds, 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 Contatos will be 15% and your calculations should ignore the 3.8% tax on investment income that was part of the Amordable 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 they buy the stock? c. What is the amount they would have from their original $50,000 it they purchased the stock and all went as planned? d. How much wm they receive after taxes each year in interest if they purchase the bonds? e. What is the total amount they would have from their original $50,000 they purchased the bonds and all went as planned? 1. Based only on your calculations and ignoring other risk factors, should they buy the stock or the bonds
