Single Premium Deferred Annuity Suppose you have $5,000 of after-tax income to invest for a 10-year period in one of three investments. None of the investments allows contributions to be deductible. The first is a taxable bond fund that generates a 10% pretax return, which is taxed annually. The second is a tax-exempt municipal bond fund that generates a 6% pretax return. The third is a single-premium deferred annuity that generates a 9.5% pretax return. You face a marginal tax rate of 30% in all years. Which investment will generate the highest after-tax return, which is in the middle, and which is lowest?

Answer rating: 100% (QA)

To determine which investment will generate the highest aftertax return we need to calculate the aft... View the full answer