Missing options:
A. Taxes affect personal financial decisions.
B. The time value of money.
C. Mind games, financial personality, and your money
D. Both A and C.
Answer:
D. Both A and C.
Step-by-step explanation:
Jessica earns a small interest on her savings account and she will need to include that earned interest in her tax returns. Her credit card also charges her an interest, which is much higher, but that interest is not tax deductible. So besides paying a lot of interest for money that she shouldn't owe, the small interest received will decrease since she will pay taxes for it.
Besides the tax effect on the interests that she earns, the interest charged by the credit card is much higher. Assuming Jessica only pays 10% marginal tax rate:
- total interest earned by the $2,300 in savings account = $2,300 x 4% x (1 - 10%) = $82.80
- total interest paid for $2,300 owed to her credit card company = $2,300 x 21% = $483.