The following investments are available to you: (a) a taxable bond with a coupon rate of 5% per year; (b) a tax-exempt bond with a coupon rate of 3% per year; and (c) prefered stock that pays a 5% annual dividend. All three investments are curently selling at face (par) values, so their pretax yields are equal to their stated coupon/dividend rates. Asset values will not change over time.

You can holod each of these assets in any of three savings vehichles: (a) held directly; (b) a non-deductible IRA; or (c) a Roth IRA. all distributions in excess of investment in a non-deductible IRA are taxed at ordinary income rates, all distributions from a Roth IRA are tax-exempt.

Assuming a 10 year holding period, compute the after tax annualized rate of return for each combinationof investment and savings vehicle. Assume that dividends earned in a taxable account are taxed at 15% and ordinary income is taxed at 35%. Assume that all earnings are reinvested in the same asset.

Investment Held Directly Non-Deductible IRA Roth IRA

Taxable Bond: ? ? ?

Tax Exempt Bond: ? ? ?

Preferred Stock ? ? ?