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

question 33

Multiple Choice

Kate 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 3% before-tax rate of return (BTROR) .Kate's marginal tax rate is 15%,and she expects it to remain so for the entire investment horizon of 25 years.What is the after-tax accumulation for the "bond outside the IRA" after 25 years (assume that bond interest is reinvested at the same rate) ?

• A)$5,585
• B)$7,507
• C)$8,375
• D)None of the above

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