At the Beginning of Year 1, Sandeep Invests $10,000 in a Money

question 379

Multiple Choice

At the beginning of year 1, Sandeep invests $10,000 in a money market fund that pays a 3% annual return before taxes. Sandeep's marginal tax rate is 25%, and he allows the after- tax earnings to remain in the money market fund. That is, he withdraws only enough cash to pay the taxes on the earnings. What is his after- tax accumulation at the end of year 2?

• A) $10,609
• B) $10,690
• C) $10,455
• D) None of the above