Shelly Is in the 24 Percent Tax Bracket and Expects

question 81

Essay

Shelly is in the 24 percent tax bracket and expects to remain in that bracket in the future. She has $100,000 to invest for 5 years and has the following alternatives: (a) corporate bonds paying 7 percent; (b) tax-exempt bonds paying 4.5 percent; (c) land that is expected to increase in value to $140,000 in 5 years. Interest on either the corporate bonds or the tax-exempt bonds can be reinvested at 7 percent interest. Any gain on the sale of the land will be eligible for the 15 percent long-term capital gain tax rate. Calculate the after-tax return for each investment. Which investment do you recommend she choose?

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Definitions:

Revolutionary War

Also known as the American Revolution, it was the conflict between Great Britain and its thirteen colonies in North America from 1775 to 1783 that led to the colonies gaining independence.

France

A country in Western Europe known for its rich history, culture, cuisine, and significant contributions to art, science, and philosophy.

Mercenaries

Soldiers for hire who are not part of a regular army or any country's official military force, often motivated by private gain.

State Constitutions

The governing documents of each U.S. state, outlining the structure, functions, and principles of state government.