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.

---

Definitions:

Truth Values

The attribute of a statement that denotes it as true, false, or in some systems, indeterminate.

Truth Table

A chart employed in logic to ascertain if a proposition is valid by cataloging every conceivable situation and their respective truth or falsity.

Atomic Sentences

Simple sentences that cannot be broken down into smaller parts while maintaining meaning.

Truth Values

The valuation in logic that shows the relation of a statement to the truth, typically classified as either true or false.