Alan inherited $100,000 with the stipulation that he invest it to financially benefit his family. Alan and

Alan inherited $100,000 with the stipulation that he €œinvest 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.

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 rates of return columns for each investment and provide investment recommendations for Alan and Alice.

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Cooper's Education Vacation Home Initial investment Investment horizon $50,000 $50,000 5 years 18 years Annual After-Tax Rate of Return Annual After-Tax Rate of Return 18 Years 4.75% 5 Years Corporate bonds (ordinary 5.75% interest taxed annually) Dividend-paying stock (no appreciation and dividends are taxed at 15%) Growth stock Municipal bond (tax-exempt) 3.20% 3.50% 3.50% FV = $65,000 FV = $140,000 3.10%