Alan inherited $104,400 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 Cooper's education. Vacation Home Initial investment Investment horizon $ 52,200 5 years Cooper's Education $52,200 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.) Corporate bonds (ordinary interest taxed annually) Dividend-paying stock (no appreciation and dividends are taxed at 15%) Growth stock Municipal bond (tax-exempt) 5 Years Annual After- Tax Rate of Return 18 Years Annual After- Tax Rate of Return 5.75 % 3.50 % 3.91 % 4.75 % 3.23% 2.98 % 3.50 % 2.98 % Future value is $76,000 Future value % is $250,000 3.20 % 3.20% 3.10 % 3.10 %
Alan inherited $104,400 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 Cooper's education. Vacation Home Initial investment Investment horizon $ 52,200 5 years Cooper's Education $52,200 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.) Corporate bonds (ordinary interest taxed annually) Dividend-paying stock (no appreciation and dividends are taxed at 15%) Growth stock Municipal bond (tax-exempt) 5 Years Annual After- Tax Rate of Return 18 Years Annual After- Tax Rate of Return 5.75 % 3.50 % 3.91 % 4.75 % 3.23% 2.98 % 3.50 % 2.98 % Future value is $76,000 Future value % is $250,000 3.20 % 3.20% 3.10 % 3.10 %
Chapter5: Gross Income: Exclusions
Section: Chapter Questions
Problem 56P
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Transcribed Image Text:Alan inherited $104,400 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 Cooper's education.
Vacation Home
Initial investment
Investment horizon
$ 52,200
5 years
Cooper's Education
$52,200
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.)
Corporate bonds (ordinary interest taxed annually)
Dividend-paying stock (no appreciation and dividends are taxed at 15%)
Growth stock
Municipal bond (tax-exempt)
5 Years
Annual After-
Tax Rate of
Return
18 Years
Annual After-
Tax Rate of
Return
5.75 %
3.50 %
3.91 %
4.75 %
3.23%
2.98 %
3.50 %
2.98 %
Future value
is $76,000
Future value
%
is $250,000
3.20 %
3.20%
3.10 %
3.10 %
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