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# Bernie and Pam Britten: Mortgage and investing, how should they invest their \$40,000?

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Bernie and Pam Britten are a young married couple beginning careers and establishing a household. They will each make about \$50,000 next year and will have accumulated about \$40,000 to invest. They now rent an apartment but are considering purchasing a condominium for \$100,000. If they do, a down payment of \$10,000 will be required.

They have discussed their situation with Lew McCarthy, an investment advisor and personal friend, and he has recommended the following investments:

The condominium - expected annual increase in market value = 5%.
Municipal bonds - expected annual yield = 5%.
High-yield corporate stocks - expected dividend yield = 8%.
Savings account in a commercial bank-expected annual yield = 3%.
High-growth common stocks - expected annual increase in market value = 10%; expected dividend yield = 0.
Calculate the after-tax yields on the foregoing investments, assuming the Brittens have a 28% marginal tax rate (based on Public Law 108-27, The Jobs and Growth Tax Relief Reconciliation Act of 2003).

How would you recommend the Brittens invest their \$40,000?

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#### Solution Preview

The condominium - expected annual increase in market value = 5%. ATY 2000x 0.72 = 1440
Municipal bonds - expected annual yield = 5%. ATY 2000 x 0.72 = 1440
High-yield corporate stocks - expected ...

#### Solution Summary

The solution looks at a variety of investment options and calculates rates of return for each. In the end, the response makes a recommendation about which investments.

\$2.49