3. As you know, municipal bonds (Munis) are a tax-exempt investment alternative in the case of...

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3. As you know, municipal bonds (Munis) are a tax-exempt investment alternative in the case of federal taxes and in the case of most state and local taxes. Despite a relatively low rate of return, Munis size up well when taxes are taken into consideration. Outside of your company pension plan, let's assume a relative passes away and leaves you a $50,000 inheritance. Your three alternatives are a muni that pays 6.5%, a CD that pays 4.5% and a corporate bond that pays 10%. Assuming you are in the 28% tax bracket, calculate the after-tax return on your investment for each alternative. Project savings out for 5 years. a. Invested amount b. Interest rate C. Return on investment (5yr) d. Tax on interest income $ 4441.04 $ 2954.18 c. After-tax return on $ 14063.29 $ 9354.92 6.5% $18504.33 $ 12309.10 $30525.50 $ 7326.12 $23199.38 Muni CD Corporate Bond $50,000 $50,000 $50,000 4.5% 10% investment 4. There is good and bad debt. Good debt is containing the student loan debt and the mortgage debt Bad Debt is containing the car loans, payday loan debt, and credit card bills. Suppose you owe $10,000 on your credit card with a 15% APR. You have an opportunity to refinance your home and you could pull out some equity to pay off the credit card and add the debt into the new home loan at 4% APR. What is the: Annual Interest paid to credit card company? $1,500 Is this interest tax deductible? If the interest is with the home loan, the interest tax should be deductible. But it will not be tax deductible if the interest is with the credit card company. Annual Interest paid (of the $10,000) debt with the home loan? $1,100 Is this interest Tax Deductible? Yes Assuming you are in the 28% tax bracket, what is your after tax SAVINGS if you pay down the $10,000 debt in your home loan? 0.28 x 10,000 = 2,800 What is your after tax savings of the interest if you choose to pay off the credit card and put the $10,000 into your home loan? 3. As you know, municipal bonds (Munis) are a tax-exempt investment alternative in the case of federal taxes and in the case of most state and local taxes. Despite a relatively low rate of return, Munis size up well when taxes are taken into consideration. Outside of your company pension plan, let's assume a relative passes away and leaves you a $50,000 inheritance. Your three alternatives are a muni that pays 6.5%, a CD that pays 4.5% and a corporate bond that pays 10%. Assuming you are in the 28% tax bracket, calculate the after-tax return on your investment for each alternative. Project savings out for 5 years. a. Invested amount b. Interest rate C. Return on investment (5yr) d. Tax on interest income $ 4441.04 $ 2954.18 c. After-tax return on $ 14063.29 $ 9354.92 6.5% $18504.33 $ 12309.10 $30525.50 $ 7326.12 $23199.38 Muni CD Corporate Bond $50,000 $50,000 $50,000 4.5% 10% investment 4. There is good and bad debt. Good debt is containing the student loan debt and the mortgage debt Bad Debt is containing the car loans, payday loan debt, and credit card bills. Suppose you owe $10,000 on your credit card with a 15% APR. You have an opportunity to refinance your home and you could pull out some equity to pay off the credit card and add the debt into the new home loan at 4% APR. What is the: Annual Interest paid to credit card company? $1,500 Is this interest tax deductible? If the interest is with the home loan, the interest tax should be deductible. But it will not be tax deductible if the interest is with the credit card company. Annual Interest paid (of the $10,000) debt with the home loan? $1,100 Is this interest Tax Deductible? Yes Assuming you are in the 28% tax bracket, what is your after tax SAVINGS if you pay down the $10,000 debt in your home loan? 0.28 x 10,000 = 2,800 What is your after tax savings of the interest if you choose to pay off the credit card and put the $10,000 into your home loan?