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

question 63

Multiple Choice

Charlene 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 7% before-tax rate of return (BTROR) .Charlene's marginal tax rate is 20%,and she expects it to remain so for the entire investment horizon of 25 years.What is her annualized after-tax rate of return (annualized ATROR) for the "bond outside the IRA"?

• A)5)6%
• B)6%
• C)6)5%
• D)7%

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