The multiplier function

compares the growth of an Individual Retirement Account (IRA) with the growth of the same deposit in a regular savings account. The function M depends on the three variables n, i, and t, where n represents the number of years an amount is left at interest, i represents the interest rate in both types of accounts, and t represents the income tax rate. Values of M + 1 indicate that the IRA grows faster than the savings account. Let M > f(n, i, t) and find the following.

Find the multiplier when funds are left for 25 years at 5% interest and the income tax rate is 33%. Which account grows faster?

Transcribed Image Text:

M = (1 + i)"(1 − t) + t [1 + (1 – t)i]n