Roy Is Considering Purchasing Land for $10,000

question 34

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 a 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:

Mammalian Brain

The complex central nervous system structure in mammals, responsible for processing sensory information and controlling responses.

Temporal Lobe

One of the four major lobes of the brain, involved in processing auditory information and is associated with memory, speech, and emotion.

Parietal Lobe

A region of the cerebral cortex involved in processing sensory information regarding the location of parts of the body as well as interpreting visual information and processing language and mathematics.

Occipital Lobe

The region of the brain located at the back of the head, responsible for visual processing.