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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
6.57 selected answer incorrect%
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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