Margaret Owns Land That Appreciates at the Rate of 10

question 114

Multiple Choice

Margaret owns land that appreciates at the rate of 10% each year. Ralph owns a zero-coupon (i.e., all of the interest is paid at maturity but is taxed annually) corporate bond with a yield to maturity of 10%. At the end of 10 years, the bond will mature and the land will be sold. At the end of the 10 years,

• A) Margaret and Ralph will have accumulated the same after-tax amounts.
• B) Ralph will have accumulated a greater after-tax amount because the interest on the bond is tax-exempt.
• C) Margaret will have accumulated the greater after-tax amount because the gain on the land is tax-exempt.
• D) Margaret will have accumulated the greater after-tax amount but only if her marginal tax rate never exceeds 27%.
• E) Margaret will accumulate the greater after-tax amount because she earns a return on the deferred taxes.

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Definitions:

Mother

A female parent or guardian who provides care, protection, and guidance to her offspring.

Defence Mechanisms

Psychological strategies brought into play by the unconscious mind to manipulate, deny, or distort reality in order to defend against feelings of anxiety or unacceptable thoughts and feelings.

Psychoanalytic Manoeuvre

A technique used in psychoanalysis to explore the unconscious motives behind one’s behaviors and thoughts.

Repression

A defense mechanism identified in psychoanalytic theory where unpleasant thoughts, memories, or desires are unconsciously pushed from conscious thought.