Susan Brown Has Decided That She Would Like to Go

question 107

Essay

Susan Brown has decided that she would like to go back to school after her kids leave home in five years.To save for her education,Susan would like to invest $25,000 in an investment that provides a high return.If her marginal tax rate is 35 percent,what is Susan's after-tax rate of return for the following investment options? Qualified dividends are taxed at 15 percent.(Round your interim calculations to the nearest whole number)
(1)Corporate bond issued at face value with 10 percent stated interest rate payable annually.
(2)Dividend-paying stock with an annual qualifying dividend equal to 10% of her investment.
(3)Growth stock with an annual growth rate of 8 percent and no dividends paid.

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Definitions:

Poisson Distribution

A probability distribution that expresses the likelihood of a given number of events occurring in a fixed interval of time or space.

Normal Distribution

A type of continuous probability distribution for a real-valued random variable, characterized by a symmetric bell-shaped curve.

Binomial Distribution

A probability distribution that summarizes the likelihood that a variable will take one of two independent values under a given set of parameters.

Random Variable

A random variable is a variable whose possible values are numerical outcomes of a random phenomenon.