An Investor Must Decide Between Putting a One-Time Contribution of $2000

question 52

Multiple Choice

An investor must decide between putting a one-time contribution of $2000 into a regular retirement plan or putting $1,440 into a Roth retirement plan. If the investor's tax rate is 28% now and in retirement, and she expects to earn 12% per year over the next 20 years, which will produce more cash in the end?

• A) the investment in the regular retirement plan
• B) the investment in the Roth retirement plan
• C) both investments will have the same future value after-taxes
• D) the answer cannot be determined from the information given

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Definitions:

Issue Price

The price at which new shares, bonds, or other securities are offered to the public or the holders.

Cash Dividend

A payment of profits by a company to its shareholders in the form of cash, typically issued on a quarterly basis.

Liability

A financial obligation or debt owed by a business to another entity.

Participating Preferred Stock

A type of preferred stock that provides holders the right to dividend payments exceeding the basic fixed rate if the company meets specified financial performance criteria.