{Planning} Alan inherited $100,000 with the stipulation that he “invest it to financially benefit his family.” Alan and Alice decided they would inve
{Planning} 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.
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\r\n \r\n | \r\n\r\n Vacation Home \r\n | \r\n\r\n Cooper’s Education \r\n | \r\n
\r\n Initial Investment \r\n | \r\n\r\n $50,000 \r\n | \r\n\r\n $50,000 \r\n | \r\n
\r\n Investment Horizon \r\n | \r\n\r\n 5 years \r\n | \r\n\r\n 18 years \r\n | \r\n
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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.
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\r\n \r\n | \r\n\r\n 5 Years \r\n | \r\n\r\n Annual After-Tax Rate of Return \r\n | \r\n\r\n 18 Years \r\n | \r\n\r\n Annual After-Tax Rate of Return \r\n | \r\n
\r\n Corporate bonds (ordinary interest taxed annually) \r\n | \r\n\r\n 5.75% \r\n | \r\n\r\n \r\n | \r\n\r\n 4.75% \r\n | \r\n\r\n \r\n | \r\n
\r\n Dividend-paying stock \r\n(no appreciation and dividends are taxed at 15%) \r\n | \r\n\r\n \r\n 3.50% \r\n | \r\n\r\n \r\n | \r\n\r\n \r\n 3.50% \r\n | \r\n\r\n \r\n | \r\n
\r\n Growth stock \r\n | \r\n\r\n Future Value is $65,000 \r\n | \r\n\r\n \r\n | \r\n\r\n Future Value is $140,000 \r\n | \r\n\r\n \r\n | \r\n
\r\n Municipal bond (tax-exempt) \r\n | \r\n\r\n 3.20% \r\n | \r\n\r\n \r\n | \r\n\r\n 3.10% \r\n | \r\n\r\n \r\n | \r\n
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Complete the two annual after-tax rates of return columns for each investment and provide investment recommendations for Alan and Alice.
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