Vidya Can Invest $5,000 of After-Tax Dollars (AT$)directly in a Taxable

question 10

Multiple Choice

Vidya can invest $5,000 of after-tax dollars (AT$) directly in a taxable bond outside an IRA,or he can contribute the $5,000 to a nondeductible IRA and invest in the same bond through the IRA vehicle.In either case,the bond yields an annual 5% before-tax rate of return (BTROR) .Vidya's marginal tax rate is 15%,and he expects it to remain so for the entire investment horizon of 20 years.What is the after-tax accumulation for the "bond inside the IRA" after 20 years?

• A)$12,027
• B)$11,277
• C)$10,062
• D)None of the above.

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