Question

Kate is in the 15% tax bracket and has $29,000 available for investment during her current tax year. Assume that she remains in the same tax bracket over the next 11 years, and determine the accumulated amount of her investment after taxes if she puts the$29,000 into the following. (Round your answers to the nearest cent.)(a) a tax-deferred annuity that pays 4%/year, tax deferred for 11 years$ (b) a taxable instrument that pays 4%/year for 11 years

Answer 1

Answer and Explanation:

The computation is shown below:

a. The Accumulated amount of her investment atter taxes is

Before that first we have to determine the future value which is shown below:

As we know that

Future value = Present value × (1 + interest rate)^number of years

= $29,000 × (1 + 0.04)^11

= $44,644.17

And, the tax rate is 15%

So, the after tax value is

= $44,644.17 × (1 - 0.15)

= $37,947.54

b. Now for the second part it is

= Annual cash flows × Annuity factor at 3.4% for 11 years

= $29,000 × 10.638

= $308,502