(a) The

$30,000

of excess liquidity is earning 5 percent compounded monthly in a money market fund. This is a 5.12 percent annualized return. How was this determined?\ (b) This annualized return of 5.12 percent results in an after-tax return of 3.58 percent since taxes on any interest must be paid each year. How was this determined?\ Assume a 4 percent after-tax annual return will be earned in a money market fund. How much will be accumulated in 20 years if the

$30,000

remains in the money market and

$3,052

per year is placed in the same investment? (Note that you are analyzing the "as is" investment strategy.)\ (a) If 30,000 after-tax dollars are invested at 7 percent in a single-premium tax-deferred annuity, how many after-tax dollars will be accumulated in 20 years?\ (b) Studebaker can afford to have his annual income reduced by 3,052 aftertax dollars. How much is this before taxes? If these before-tax dollars are invested each year at 7 percent, how many after-tax dollars will be accumulated in 20 years?\ (c) Redo part (b) assuming 8 percent is earned during years 1 to 10,5 percent during years 11 to 15 , and 7 percent in years 16 to 20 .\ (a) Studebaker is eligible to put 12,000 before-tax dollars each year into a taxdeferred annuity (TDA). In order to invest in a TDA, however, he must have his salary reduced, and the case indicates that he can afford a reduction in his spendable income of

$3,052

each year without disrupting his lifestyle. One investment option is to increase the amount placed into a TDA each year to the legal maximum of

$12,000

and move funds from the money market to cover the resulting shortfall in Studebaker's spend-

1. (a) The $30,000 of excess liquidity is earning 5 percent compounded monthly in a money market fund. This is a 5.12 percent annualized return. How was this determined? (b) This annualized return of 5.12 percent results in an after-tax return of 3.58 percent since taxes on any interest must be paid each year. How was this determined? 2. Assume a 4 percent after-tax annual return will be earned in a money market fund. How much will be accumulated in 20 years if the $30,000 remains in the money market and $3,052 per year is placed in the same investment? (Note that you are analyzing the "as is" investment strategy.) 3. (a) If 30,000 after-tax dollars are invested at 7 percent in a single-premium tax-deferred annuity, how many after-tax dollars will be accumulated in 20 years? (b) Studebaker can afford to have his annual income reduced by 3,052 aftertax dollars. How much is this before taxes? If these before-tax dollars are invested each year at 7 percent, how many after-tax dollars will be accumulated in 20 years? (c) Redo part (b) assuming 8 percent is earned during years 1 to 10,5 percent during years 11 to 15 , and 7 percent in years 16 to 20 . 4. (a) Studebaker is eligible to put 12,000 before-tax dollars each year into a taxdeferred annuity (TDA). In order to invest in a TDA, however, he must have his salary reduced, and the case indicates that he can afford a reduction in his spendable income of $3,052 each year without disrupting his lifestyle. One investment option is to increase the amount placed into a TDA each year to the legal maximum of $12,000 and move funds from the money market to cover the resulting shortfall in Studebaker's spend