Harper is considering three alternative investments of $10,000. Assume that the taxpayer is in the 24% marginal tax bracket for ordinary income and 15% for qualifying capital gains in all tax years. The selected investment will be liquidated at the end of five years. The alternatives are: A taxable corporate bond yielding 5.333% before tax and the interest can be reinvested at 5.333% before tax. A Series EE bond that will have a maturity value of $12,200 (a 4% before-tax rate of return). Land that will increase in value. The gain on the land is classified and taxed as a long-term capital gain. The income from the bonds is taxed as ordinary income. How much must the land increase in value to yield a greater after-tax return than either of the bonds? Below are the factors for the compound amount of $1 and compound value of annuity payments at the end of five years: Interest Rate $1 Compounded for Five Years $1 Annuity Compounded for Five Years 4% 1.2167 5.4163 5% 1.2763 5.5256 When required, round your answer to the nearest dollar. a. The taxable bond and reinvested earnings will accumulate at an after-tax rate of 4% The after-tax value of the taxable bond and reinvested earnings will be $____________. b. The income from the Series EE bond will not be taxed each year. The after-tax value of the Series EE bond will be $________________.
Harper is considering three alternative investments of $10,000. Assume that the taxpayer is in the 24% marginal tax bracket for ordinary income and 15% for qualifying
- A taxable corporate bond yielding 5.333% before tax and the interest can be reinvested at 5.333% before tax.
- A Series EE bond that will have a maturity value of $12,200 (a 4% before-tax
rate of return ). - Land that will increase in value.
The gain on the land is classified and taxed as a long-term
How much must the land increase in value to yield a greater after-tax return than either of the bonds?
Below are the factors for the compound amount of $1 and compound value of annuity payments at the end of five years:
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When required, round your answer to the nearest dollar.
a. The taxable bond and reinvested earnings will accumulate at an after-tax rate of 4%
The after-tax value of the taxable bond and reinvested earnings will be $____________.
b. The income from the Series EE bond will not be taxed each year.
The after-tax value of the Series EE bond will be $________________.
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