Alan inherited $100,000 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 Cooper’s education.

Vacation Home Cooper’s Education Initial investment $50,000 $50,000 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.
5 Years Annual After-
Tax Rate of Return 18 Years Annual After-
Tax Rate of Return Corporate bonds (ordinary interest taxed annually)
5.75% 4.75%
Dividendpaying stock (no appreciation and dividends are taxed at 15%)
3.50% 3.50%
Growth stock FV = $65,000 FV = $140,000 Municipal bond (taxexempt)
3.20% 3.10%
Complete the two annual after-tax rate of return columns for each investment and provide investment recommendations for Alan and Alice.