3. Suppose that you are going to save $4,000 of your income for one year, after...

 

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3. Suppose that you are going to save $4,000 of your income for one year, after which you will spend it along with any accumulated interest you earned. Assume that your marginal income tax rate is 30%. Consider the following two options: Option 1: Invest in a regular savings account earning 10% interest. Option 2: Invest in an individual retirement account earning 10% interest. Determine the after-tax value of your savings a year from now under both options. If the amounts are the same, explain why they're the same. If the amounts are different, explain why they're different. 3. Suppose that you are going to save $4,000 of your income for one year, after which you will spend it along with any accumulated interest you earned. Assume that your marginal income tax rate is 30%. Consider the following two options: Option 1: Invest in a regular savings account earning 10% interest. Option 2: Invest in an individual retirement account earning 10% interest. Determine the after-tax value of your savings a year from now under both options. If the amounts are the same, explain why they're the same. If the amounts are different, explain why they're different.

Answer rating: 100% (QA)

To determine the aftertax value of savings under both options well calculate the future value of the ... View the full answer