Question

Problem 2-02 a. Someone in the 36 percent tax bracket can earn 8 percent annually on her investments in a tax-exempt IRA account. What will be the value of a one-time $12,000 investment in 5 years? 10 years? 20 years? You may use Appendix C to answer the questions. Do not round intermediate calculations. Round your answers to the nearest dollar. in 5 years: $ in 10 years: $ in 20 years: $ b. Suppose the preceding 8 percent return is taxable rather than tax-deferred and the taxes are paid annually. What will be the after-tax value of her $12,000 investment after 5, 10, and 20 years? Do not round intermediate calculations. Round your answers to the nearest dollar. in 5 years: $ in 10 years: $ in 20 years: $

Answer 1

Solution- a) in syears :$17,632 in 1oyear s ; $25,90T , $ 55, a 32 in 20 yearS ) in s years ;$15,402 in 10 years $19,771 in 20 yearS, $32,5TS Explanation!- a) $12,000 invested in annual compounding). 3 Percent twe exempl IRA (assuming in s years : $ 12.000(FUIF@)=$1200(4.4693) => $ 17,632 in 10 years: $12:000 (FUIF@8) =$12,000(?-1589)=> $25,907 %3D in 2oyears: $12:000 LFUIF@ = $ 12,00o(4.66!0) =) 55,932

S Aftey tasc yleid. = Before tax yield x(1- Tax Rake) = 2.1.L1-0.36) - 5:12%. Ś12,000 invesbed at 5.12 percentlassuming annual compounaing) in 5 years = $12.000 (FVIF @ S.12:%) - $12,000(1.2835) = $ 15,402 Ś12,000 6FVIF @ S.12.) in 10 yecrs= $12:000 L1.G4766) -$19,771 in 20years -$12,000LFUIF @ 5.12%.) -$ 12,000(2.TI46) -$32,575

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