You operate in an environment in which you can earn 5% compounded semi-annually after taxes and no more. If someone promised you $1,638.62 at the end of 10 years.

What would you pay today for that promise, assuming you knew you could trust the promisor?

 

2. Assume instead you had cash of $1,000 and that you were offered $1,344.89 payable at the end of year 6 to lend it.

a. Would you agree to the deal? 

b. What would you agree to if you had other investment opportunities that paid 10% compounded semi-annually?

 

3. You are a 33% bracket taxpayer.  You have a chance to defer $163,862 of income taxes for 10 years. You operate in an environment in which you can earn 5% compounded semi-annually after taxes. 

What is the present value (really meaning cost in today's dollars) of the deferred tax bill? 

Would you be willing to pay a large fee to a tax professional who could tell you how to defer the tax?

Answer rating: 100% (QA)

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