Ms. P, age 51, plans to save $5,000 this year toward her retirement. She is considering three

Question:

Ms. P, age 51, plans to save $5,000 this year toward her retirement. She is considering three different investments. First, she could make a nondeductible contribution to a traditional IRA earning 5 percent a year. Second, she could purchase a certificate of de-posit paying 5 percent annual interest. Third, she could purchase corporate stock paying a 5 percent annual qualifying dividend. In each case, Ms. P will reinvest her after-tax earnings (each investment will grow at an after-tax rate of return). She anticipates liquidating her investment after 15 years and using the after-tax cash to make a down payment on a condominium. Determine which investment has the greatest after-tax future value. To compute the future value of a sum invested in year 0, use the discount factors in Appendix a. Simply multiply the sum by (1 4 discount factor). For example, the future value of $100 invested at 9 percent after five years is $154 [$100 3 1.538 (1 4 .650 discount factor)]. In making your computations, assume that Ms. P’s marginal tax rate on ordinary in-come is 20 percent and her preferential rate on qualifying dividends is 10 percent over the 15-year investment period. Future Value
Future value (FV) is the value of a current asset at a future date based on an assumed rate of growth. The future value (FV) is important to investors and financial planners as they use it to estimate how much an investment made today will be worth...
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question
Question Posted: