This Problem Compares the Effect of a Tax on Interest

question 120

Essay

This problem compares the effect of a tax on interest earnings over a number of years, when interest is compounded annually. Suppose you purchase $1000 worth of mutual funds paying an average of 5 percent per year.
a) How much is your interest after 30 years if there was no tax on interest?
b) How much is your interest after 30 years if there is a 20 percent tax on interest earnings?

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