Kate Can Invest $4,000 of After-Tax Dollars (AT$)directly in a Taxable

question 45

Multiple Choice

Kate can invest $4,000 of after-tax dollars (AT$) directly in a taxable bond outside an IRA, or she can contribute the $4,000 to a nondeductible IRA and invest in the same bond through the IRA vehicle. In either case the bond yields an annual 3% before-tax rate of return (BTROR) . Kate's marginal tax rate is 15%, and she expects it to remain so for the entire investment horizon of 25 years. What is the after-tax accumulation for the "bond outside the IRA" after 25 years?

• A)$5,585
• B)$7,507
• C)$8,375
• D)None of the above.

---

Definitions:

Control

The power to influence or direct people's behavior or the course of events.