the 6 month cds consist of two 50 000 certificates both of which yield 4 interes 403484 | Homework Solutions
The 6 month CDs consist of two $50,000 certificates, both of which yield 4% interest. One CD matures on January 3, 2012. Nick’s banker tells him that he can renew the CD for one year at 4%. Nick’s stockbroker tells him that he can purchase tax exempt bonds with a yield of 3%. Nick would like you to determine whether the tax exempt bonds provide him a better after tax return than the CD. c. Jolene is concerned that they are not getting the best return on their Corb Company stock. When they purchased the stock in 2001, the $.75 per share dividend was yielding 10% before taxes. However, the rise in market value has far outpaced the dividend growth, and it is yielding only 3.75%, based on the current market value. Jolene thinks they should sell the stock and purchase either the 3% tax exempt securities or the 4% CD if it would be a better deal from an income tax viewpoint. Calculate the tax effect on their 2012 income of selling the shares, and determine whether they should sell the shares and invest the after tax proceeds in tax exempt securities or the 4% CD. Do this calculation after you have determined the best option regarding the CD that matures in January.
