Question

If John invested $20,000 in a stock paying annual qualifying dividends equal to 4% of his investment, what would the value of his investment be 5 years from now? Assume John's marginal ordinary tax rate is 15%.

A. $23,400
B. $23,639
C. $24,000
D. $24,333
E. None of the above

Answer 1

To calculate the value of John's investment after 5 years, use the formula for compound interest. The correct answer is B. $23,639.

Step-by-step explanation:

To calculate the value of John's investment after 5 years, we can use the formula for compound interest. The formula is: final value = initial value * (1 + interest rate)^number of periods.

In this case, John's initial investment is $20,000, the interest rate is 4%, and the number of periods is 5 years.

Therefore, the final value of John's investment would be $20,000 * (1 + 0.04)^5 = $23,638.88.

So the correct answer is B. $23,639.