Purchase Solution

Before- and After-tax Values of One-Time Investment

Not what you're looking for?

Ask Custom Question

A) Someone in the 36 percent tax bracket can earn 9 percent annually on her investment in a tax-exempt IRA account. What will be the value of a one time $10,000 investment in 5 years? 10 years? 20 years?
b) Suppose the preceding 9 percent is taxable rather then tax-deferred and the taxes are paid annually. What will be the the after-tax value of her $10,000 investment after 5, 10, 20 years?

Purchase this Solution

Solution Summary

This solution will illustrate how to compute the before- and after-tax values of a one-time investment earning 9 percent after 5, 10 and 20 years,

Solution Preview

a) Someone in the 36 percent tax bracket can earn 9 percent annually on her investment in a tax-exempt IRA account. What will be the value of a one time $10,000 investment in 5 years? 10 years? 20 years?

There are no taxes to consider, so we can use the basic formula for the future value of $1, which is:

Future value of $1=$1*(1+interest rate)^Number of compounding periods

Thus, in 5 years the $10,000 will be worth:

Future value of $10,000=$10,000*(1.09)^5=$10,000*1.09*1.09*1.09*1.09*1.09=$10,000*1.538624=$15,386.24

In ...

Purchase this Solution


Free BrainMass Quizzes
Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.