Roy Is Considering Purchasing Land for $10,000

question 28

Essay

Roy is considering purchasing land for $10,000. He expects the land to appreciate in value 8% each year (compounded) and he will sell it at the end of 10 years. He also is considering purchasing a bond for $10,000. The bond does not pay any annual interest, but will pay $21,589 at maturity in 10 years. The before-tax rate of return on the bond is 8%. Roy is in the 40% (combined Federal and State) marginal tax bracket. Roy has other investments that earn an 8% before-tax rate of return. Given that the compound interest factor at 8% is 2.1589, and at 4.8% the factor is 1.5981, which alternative should Roy choose?

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Definitions:

Polyandry Benefits

Advantages derived from a mating system where one female mates with multiple males, often leading to increased genetic diversity among offspring.

Decorated Crickets

Crickets that carry material on their backs, thought to be a form of predator defense or mate attraction.

Offspring Survival

The likelihood or rate at which an organism's offspring live to a reproductive age, often influenced by environmental and genetic factors.

Peahens

The female counterparts of peacocks, distinguished by their lack of the colorful tail feathers exhibited by males.