Question
Alan inherited $102,400 with the stipulation that he invest it to financially benefit his family. Alan and his wife Alice decided they would invest the
Alan inherited $102,400 with the stipulation that he invest it to financially benefit his family. Alan and his wife Alice decided they would invest the inheritance to help them accomplish two financial goals: purchasing a Park City vacation home and saving for their son Coopers education.
Vacation Home | Coopers Education | |||||
Initial investment | $ | 51,200 | $ | 51,200 | ||
Investment horizon | 5 | years | 18 | years | ||
|
Alan and Alice have a marginal income tax rate of 32 percent (capital gains rate of 15 percent) and have decided to investigate the following investment opportunities.
Complete the two annual after-tax rate of return columns for each investment. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)
| 5 Years | Annual After-Tax Rate of Return | 18 Years | Annual After-Tax Rate of Return | |
---|---|---|---|---|---|
Corporate bonds (ordinary interest taxed annually) | 5.75 % | 3.91selected answer correct% | 4.75% | 3.23selected answer correct% | |
Dividend-paying stock (no appreciation and dividends are taxed at 15%) | 3.50% | 2.98selected answer correct% | 3.50% | 2.98selected answer correct% | |
Growth stock | Future value is $71,000 |
| Future value is $200,000 | 13.72selected answer incorrect% | |
Municipal bond (tax-exempt) | 3.20% | 3.20selected answer correct% | 3.10% | 3.10selected answer correct% |
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