David can make a single investment in one of three alternatives. The first investment conforms to the Current Model, the second investment conforms to the Deferred Model, and the third investment conforms to the Pension Model. The investment horizon is seven years, and the BTROR for each alternative is 10%. David will incur no penalties upon withdrawal.
a. Assuming David’s tax rate will be 15% for all seven years, what is the accumulation and annualized ATROR for each investment? Which alternative should David choose?
b. Assuming David’s tax rate will be 15% for the first six years but will be 25% in the seventh year, what is the accumulation and annualized ATROR for each investment? Which alternative should David choose?