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
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