V. You want to save $2,000 today for retirement in 40 years. You have to choose...
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V. You want to save $2,000 today for retirement in 40 years. You have to choose between the two plans listed in (i) and (ii). i. Pay no taxes today, put the money in an interest-yielding account, and pay taxes equal to 25% of the total amount withdrawn at retirement. (In the U.S., such an account is known as a regular individual retirement account, or IRA.) ii. Pay taxes equivalent to 20% of the investment amount today, put the remainder in an interest-yielding account, and pay no taxes when you withdraw your funds at retirement. (In the U.S., this is known as a Roth IRA.) a. What is the expected present discounted value of each of these plans if the interest rate is 1%? 10%? b. Which plan would you choose in each case? V. You want to save $2,000 today for retirement in 40 years. You have to choose between the two plans listed in (i) and (ii). i. Pay no taxes today, put the money in an interest-yielding account, and pay taxes equal to 25% of the total amount withdrawn at retirement. (In the U.S., such an account is known as a regular individual retirement account, or IRA.) ii. Pay taxes equivalent to 20% of the investment amount today, put the remainder in an interest-yielding account, and pay no taxes when you withdraw your funds at retirement. (In the U.S., this is known as a Roth IRA.) a. What is the expected present discounted value of each of these plans if the interest rate is 1%? 10%? b. Which plan would you choose in each case?
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Answer a1 We have Expected present discounted value of Plan i at 1 interes... View the full answer
Related Book For
Financial Accounting
ISBN: 978-0078025549
3rd edition
Authors: J. David Spiceland, Wayne Thomas, Don Herrmann
Posted Date:
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