Chapter 2 homework

4.

a. Someone in the 36 percent tax bracket can earn 9 percent annually on her investments

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 return is taxable rather than tax-deferred and the taxes

are paid annually. What will be the after-tax value of her $10,000 investment after 5, 10,

and 20 years?

 

5.

a. Someone in the 15 percent tax bracket can earn 10 percent on his investments in a tax-

exempt IRA account. What will be the value of a $10,000 investment in 5 years? 10

years? 20 years?

 

b. Suppose the preceding 10 percent return is taxable rather than tax-deferred. What will

be the after-tax value of his $10,000 investment after 5, 10, and 20 years?

 

6.

Assume that the rate of inflation during all these periods was 3 percent a year. Compute the real value of the two tax-deferred portfolios in problems 4a and 5