In the questions below, assume that a taxpayers preference (decision) is based on what will give him or her the highest after-tax accumulation per after-tax dollar invested.

Please distinguish your final answer to each part in a clear way (e.g., with highlighter, circled, double-underlined, etc.).

Grading rubric for each problem:

All possible points if final answer correct and you show your work to support the answer.

s possible points if incorrect final answer but you show your work to support incorrect answer.

possible points if you just show correct final answer but no work to support the correct answer.

0 points if you show incorrect answer and have no work shown to support the incorrect answer.

Jamal would like to invest $10,000 for a 10 year investment horizon. He is trying to decide between investing in a SPDA or stock of a company that does not pay dividends. Both the SPDA and the stock have a pre-tax return of 7% each year. Jamals ordinary tax rate is 30% but the capital gain and dividend tax rate are 15%.

(20 points possible): With the circumstances above, will Jamal prefer the SPDA fund or the non-dividend paying stock? If one is preferred, which will he prefer and how much additional after-tax accumulation will he have with the preferred option in comparison with the less preferred option?

(20 points possible): Now, instead, assume that instead of a preferential 15% tax rate for capital gains that capital gains are taxed the same as ordinary income (at 30%). Will Jamal prefer one investment over the other? If so, which will he prefer and how much additional after-tax accumulation will he have with the preferred option in comparison with the less preferred option?