Alan inherited $100,000 with the stipulation that he "invest it to financially benefit his family." Alan and Alice decided they would invest the inheritance to help them accomplish two financial goals: purchasing a Park City vacation home and saving for their son, Cooper's, education.
|
|
Vacation Home
|
Cooper's Education
|
|
Initial investment
|
$50,000
|
$50,000
|
|
Investment horizon
|
5 years
|
18 years
|
Alan and Alice have a marginal income tax rate of 30 percent (capital gains rate of 15 percent) and have decided to investigate the following investment opportunities.
|
|
Annual After-Tax
|
|
Annual After-Tax
|
|
5 Years
|
Rate of Return
|
18 Years
|
Rate of Return
|
Corporate bonds (ordinary 5.75%-4.75% interest taxed annually)
Dividend-paying stock (no 3.50%-3.50% appreciation and dividends are taxed at 15%)
Growth stock is $65,000, Future value is $140,000, Future value, Municipal bond (tax-exempt) 3.20%-3.10%
Complete the two annual after-tax rates of return columns for each investment and provide investment recommendations for Alan and Alice.