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Accounting: Investment Advice and Taxes

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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. Questions: Calculate the after-tax yields on the foregoing investments, assuming the Brittens have a 27% marginal tax rate. How would you recommend the Brittens invest their $40,000?

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Solution Summary

In this problem, invesments on different expenditures have been calculated. Also, saved money is calculated by deducting taxes. Finally, it is been shown what is best for a person for investing.

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