Jayson Hopper is faced with the decision of investing a $100,000 inheritance in Canada Savings Bonds...

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Jayson Hopper is faced with the decision of investing a $100,000 inheritance in Canada Savings Bonds or using it to purchase preferred shares of a Canadian corporation. The interest rate on the Canada Savings Bonds has been set at 3.5%, while the current dividend yield on the preferred shares is 4.596. Because of risk considerations, Jayson requires that the preferred shares provide an after-tax return, which is at least 296 greater than that on the Canada Savings bonds. Jayson's federal tax rate is 29% and provincial tax rate is 11.16% Required: Canada Savings Bonds Preferred Shares Which alternative should Jayson select and why? Jayson Hopper is faced with the decision of investing a $100,000 inheritance in Canada Savings Bonds or using it to purchase preferred shares of a Canadian corporation. The interest rate on the Canada Savings Bonds has been set at 3.5%, while the current dividend yield on the preferred shares is 4.596. Because of risk considerations, Jayson requires that the preferred shares provide an after-tax return, which is at least 296 greater than that on the Canada Savings bonds. Jayson's federal tax rate is 29% and provincial tax rate is 11.16% Required: Canada Savings Bonds Preferred Shares Which alternative should Jayson select and why?

Answer rating: 100% (QA)

SOLUTION To compare the two alternatives we need to calculate the aftertax return on each invest... View the full answer